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CA Foundation · Business Economics · Nature and Scope of Business Economics

A Business Economist at a Chennai-based firm says, 'The firm should cut prices by 5% to protect market share.' Another colleague says, 'A 5% price cut raised sales volume by 8% last quarter.' Which classification is correct?

The first statement is normative because it recommends what the firm should do, which is a value judgment. The second is positive because it reports a verifiable fact about sales volume after a price cut. So the first is normative and the second positive.

  1. ABoth statements are positive
  2. BBoth statements are normative
  3. CThe first is normative and the second is positiveCorrect
  4. DThe first is positive and the second is normative

Explanation

The first statement uses 'should' and expresses a value judgment or recommendation, so it is normative. The second reports a fact that can be verified with sales data, so it is positive. Hence the first is normative and the second positive.

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