make the careful distinction between positive statements, which describe the world as it is, and normative

statements, which describe how the world should be. Even when economics analyzes the gains and losses from

various events or policies, and thus draws normative conclusions about how the world should be, the analysis

of economics is rooted in a positive analysis of how people, firms, and governments actually behave, not how

they should behave.

Self-Check Questions

1. Suppose Alphonso’s town raised the price of bus tickets from $0.50 per trip to $1 per trip (while the price

of burgers stayed at $2 and his budget remained $10 per week.) Draw Alphonso’s new budget constraint.

What happens to the opportunity cost of bus tickets?

2. Return to the example in Figure 2.4. Suppose there is an improvement in medical technology that enables

more healthcare with the same amount of resources. How would this affect the production possibilities
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