Chap002 - Chapter 2 - Tools of Positive Analysis Chapter 2...

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Chapter 2 - Tools of Positive Analysis Chapter 2 – Tools of Positive Analysis 1. The reality that astronomers are trying to understand is not influenced by any “policies” that astronomers might implement. That is, planets and stars do act any differently when they are being analyzed, whereas people can change their behavior. Moreover, the parameters with which astronomers must deal are constant over time (at least in the “short-run” of hundreds of years), while the parameters in economics can quickly change over time and across geography. 2. A change in the marginal tax rate changes the individual’s net wage. This generates both an income effect and a substitution effect. As long as leisure is a normal good, these effects work in opposite directions. Hence, one cannot tell a priori whether labor supply increases or decreases. One could ask taxpayers to describe how they would change their behavior under the proposal, but it is hard to imagine that this would yield useful results. In a social experiment, a control group would confront the status quo, and an experimental group would face the new tax regime. This is clearly infeasible. Econometric investigation of labor supply seems the best approach, particularly if data
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Chap002 - Chapter 2 - Tools of Positive Analysis Chapter 2...

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