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Economics is involved with the study of day-to-day trade activities. Resources used in trade, are usually subjected to competition due to several uses. Economics is targeted at learning the options existing for the consumer. In the study distinctions are made in order to understand. The divisions are positive and normative economics.
Positive analysis can be referred to as the knowledge division of economics. It follows and foresees the conduct of persons, organizations, and trading plus other economic activities. Studying the basic aspects of an economy that effect change can be considered as positive analysis. Areas such as consumer spending capacity can be used as a studying basis. The technique uses scientific methodology to get answers to economic questions. Positive analysis requires the investigator to use data. Information is collected and analyzed from the area of study. Scientifically, the results can be considered to reflect the situation under scrutiny.
However, in normative analysis ruling is based on the significance of economic parameters. The economic guiding principles after investigation are classified either as commendable or undeserving. The study style applies an idealistic way of thinking. Focusing on value, normative economists design systems that they believe will serve the economy. Based on perception and records, a normative review is used to evaluate an economic situation. Therefore, the method uses value addition as a prerequisite to declaring an economy as viable.
Nevertheless, both methods of economic analysis are important for management. It is usually difficult to distinctly separate the two. Both analyses are intertwined in their functions but different in the styles used to arrive at results. Most economists have trouble as they tend to confuse one for the other (Marron 2).
Economic activities in a national financial system are liable to taxation by law. Taxation is a method used by governments to raise revenue for their operations. Taxes have a load effect on the taxpayer. Alterations in financial positions due to tax are evaluated to have a true understanding of the weight. The shift ought to be gauged based on the outcome of individual earnings after tax. This is done in relation to life long repercussions of the taxation policy. Burden of tax is difficult to figure out by studying whom it is obligated to, such as in normative analysis. Change on a taxpayer’s conduct can result in a shift of the load to other sectors impacting the revenues. The financial weight of tax will not be on the individual or economic activity that pays taxes. The load presents a shift in actual revenues to the tax collecting body.
Deadweight loss is a financial load impressed on the consumer and trader. It is an additional tax to proceeds passed on to the revenue authority. In some cases, economists tend to refer to deadweight loss as excess burden of taxation. It includes losses to consumers and traders in terms of trade activities. To the trader the loss comprises an indirect cost forced on the resource suppliers to the industry. These taxes are derived as the difference between the load of specific taxes and that of theoretical similar taxes. Nevertheless, this method of calculating tax is favored more by economists. Evaluation of the excess burden requires hypotheses and complex computations. Variation in people’s financial status due to taxation can be used to sum up the exact load of the tax. The fluctuation is measured as an effect on net income after tax (Entin 1).
All in all, taxes imposed on trade activities can become a burden to the taxpayer. Parameters have been developed to measure the effects of revenue collection. A common measure is the tax burden and its influence on consumer behavior. Alternatively, excess burden on tax is a measure felt much by the revenue authority.
Entin, Stephen. “Tax Incidence, Tax Burden, and Tax Shifting: Who Really Pays the Tax?” Heritage Foundation Leadership for America. Center for Data Analysis Report #04-12. 2004. Web.
Marron, Donald. “Distinction Between Positive and Normative Economics Misses the Point” Seeking Alpha. 2009. Web.