Question

In: Economics

3.Define: (a)Positive economics (b)Normative economics.

3.Define:
(a)Positive economics

(b)Normative economics.

Solutions

Expert Solution

3 a) Positive economics is the study of economics objective analysis. The process of analyzing what has happened in the past and what is happening currently in an economy for better predictions about the future is called positive economics. Positive economics uses facts as the basis of their behavioral decisions, explanations, and economic relationships. Positive economics uses cause and effect relationships to develop economic theories. The main advantage of positive economics is that it can be tested and can be analyzed by the support of data. An example of positive economics would be the prediction of an increase in savings when the interest rate rises.

b) Normative Economics is the opposite of positive economics where they take into consideration the value judgments for analysis. This school of thought believes in value judgments, scenarios opinions, statements, etc. Normative theories are mainly dependent on "what ought to be" instead of the use of facts. Normative economics cant be tested or verified. Behavioral economics is mostly a part of normative economics. Unlike positive economics, normative economics lacks objectivity in forming economic theories.

In the case of policy implications or understanding economic theories its usually a combination of both normative and positive economics that works togther.


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