Microeconomics - Normative Statements
posted by Anonymous on .
Did I explain how normative statements are resolved and the differences between pareto and cost benefit analysis?
To resolve normative statements when comparing social states, pareto or cost benefit analysis takes place. Pareto criterion can make social states either all better off or make them all worse off (not based on equity). While the cost benefit analysis, there must be a trade-off. For example, if one state is better off, the other state is worse off.
I'm not sure what you are asking. That said, in cost-benefit analysis doesnt necessarily mean if one gains someone else must lose.
A coomon social policy question asks whether some change in policy is a good idea or not. Under a pure pareto requirement you would have to show that some are better off and nobody is worse off. Under a cost-benefit analysis you would need to show that the benefits to the winners exceeds the loss to the losers. This latter is very difficult unless you can measure inter-personal utilities (which you cannot). So, to say, using cost-benefit analysis, some policy change is a good idea is a normative statement -- it is based on judgement about notions of all sorts of things; fairness, equity, rightousness, etc.