Positive and normative economics and government intervention

Distinguish between positive economics and normative economics, and classify these statements: "youth unemployment exceeds $25\ \%$", "the government should raise the minimum wage", "raising taxes on tobacco reduces its consumption", and "more public housing must be built".

Classify these statements as positive or normative and justify each decision: "the CPI rose by $3\ \%$ last year", "the Federal Reserve should cut rates now", "public debt exceeds $100\ \%$ of GDP" and "health care should be free and universal".

In an election debate, the following statements are heard: (a) "the sales tax increase on movie tickets reduced audience numbers", (b) "sales tax on culture should be lowered", (c) "subsidies for European film maintain jobs", (d) "more should be spent on trains".

1. a) Classify each statement as positive or normative and justify your classification.
2. b) Explain why it is important to separate both types of statements in public debate.

Explain three reasons why the government intervenes in the economy (market failures, income redistribution, and economic stabilization) with an example of each.

What is a natural monopoly (an activity where duplicating the network would be wasteful, such as water or railroads)? Explain why the government usually regulates its prices or runs it directly, instead of leaving it to competition.

Shared e-scooters clutter the sidewalks, cause pedestrians to fall, and their batteries generate waste.

1. a) What market failures or externalities justify the city council regulating this service?
2. b) Design the regulation (parking zones, mandatory insurance, a fleet limit) and evaluate its costs and benefits qualitatively.

Explain what income redistribution is and how the government carries it out. Illustrate it with the case of student grants funded with taxes: who provides the money, who receives it, and with what aim?

What is an economic stabilization policy? Give an example of how the government acts when a crisis arrives (maintaining benefits, public works) and explain what it tries to avoid.

The figure summarizes the logic of public intervention: objectives, instruments, and evaluation indicators.

1. a) Apply it to the case of "reducing youth unemployment": formulate an objective, two instruments, and an indicator.
2. b) Why is it important to define the indicator before applying the measure?

Name three instruments of economic intervention by the state and give a real-life example of each applied in Spain.

Distinguish between the objective and the instrument of a public policy. In the sentence "to reduce youth unemployment, we will subsidize the hiring of under-$25$s", state which is the objective and which is the instrument, and give another alternative instrument for the same objective.

To reduce youth unemployment, a state government approves the "First Job Voucher" program: it grants a non-repayable subsidy of $\$3,000$ to any company that signs a $6$-month full-time contract with an unemployed person under $25$ years of age. One year after its implementation, the state labor department's inspectors find that $85\ \%$ of beneficiary companies terminate the contract exactly upon completing the sixth month and immediately hire another young person to collect a new grant, while the youth unemployment rate has barely changed (it went from $29.2\ \%$ to $28.8\ \%$).

1. a) Explain in detail the mechanism of perverse incentives (substitution effects and opportunistic turnover) that has turned this policy into a government failure.
2. b) Predict the consequences this design will have on job stability, workers' human capital accumulation, and the public budget if it is maintained for two more years.
3. c) Redesign the subsidy: propose two changes to its conditions or to the payment timeline structure to align business incentives with the actual goal of creating permanent, high-quality employment.