Question

Is utility theory a positive or normative theory? explain your answer.

Answer 1

`In general a positive theory is a theory that attempts to explain how the world works in a value free way, while a normative theory provides a value based view about how the world should work.In economics, positive theories attempt to explain how the economy actually operates. Normative economic theories typically propose a goal at which economies dhould aim

utility theory is based on individual preferences. It seeks to explain the behaviour of individuals based on the premise that people can rank their choices depending upon their preferences. Each individual will show different prefereences.Utility theory is a positive theory that seeks to explain the individual's observed behaviour and choices

It is not a normative theory which dictates that people should behave in a manner prescribed by it.But it is a positive theory where individuals can make their choices.After observing the choices that individuals make, we can draw conclusions about their preferences.When we place restictions on those preferences we can represent them analutically using a utility function.Utility function is a mathematical formulation that ranks the preferences of individual in terms of satisfaction different condumption bundles provide.