Define positive economics. Give an example of a positive economic statement. Define normative economics. Give an example of a normative economic statement
The Correct Answer and Explanation is:
Positive Economics refers to the branch of economics that deals with objective analysis, facts, and cause-and-effect relationships. It focuses on what is, or what will be, and is based on observable data. Positive economics is concerned with testing and describing economic phenomena without expressing opinions or value judgments. It uses empirical evidence to test hypotheses and develop theories that can be confirmed or disproved. It is often referred to as “descriptive economics” because it describes how economic systems function without making recommendations or judgments about how they should function.
Example of a positive economic statement:
“If the price of oil increases, the demand for alternative energy sources will likely rise.”
This statement is a positive economic statement because it describes a cause-and-effect relationship between an increase in the price of oil and a likely rise in the demand for alternatives, based on observed behavior in markets. It is testable through data and observation.
Normative Economics, on the other hand, is concerned with what ought to be. It involves subjective value judgments about what the economy should be like or what particular policies should be implemented. Normative economics is more opinion-based and focuses on ethical considerations, societal goals, and what is considered desirable or undesirable in economic systems. It cannot be tested or proven using empirical data because it is based on subjective opinions and values.
Example of a normative economic statement:
“The government should raise the minimum wage to reduce poverty.”
This is a normative economic statement because it reflects a value judgment about what should be done to improve the economy and society. It expresses an opinion about what is desirable (raising the minimum wage to reduce poverty) and cannot be proven or disproven based on factual data alone.
In essence, while positive economics seeks to explain the world as it is, normative economics provides recommendations about how the world should be.
