Definition
Positive economics is a stream of economics that deals with the description, analysis, and explanation of economic phenomena. It focuses on facts and cause-and-effect behavioral relationships, making objective statements about economic issues. Unlike normative economics, positive economics is based purely on hard facts and data, not individual or societal values or judgments.
Key Takeaways
- Positive Economics is concerned with the description, explanation, and prediction of economic phenomena. It involves the analysis of actual and ‘objective’ facts or data.
- Unlike normative economics, which involves value judgements, positive economics is based on factual statements – what currently is, what was, or what will be.
- Most of the economic theories developed in recent times such as supply, demand, inflation, etc., are the results of positive economic analysis. These theories and models are used to solve economic problems and to predict and control economic behavior.
Importance
Positive Economics is important because it is the branch of economics that concerns the description and explanation of economic phenomena.
It focuses on facts and cause-and-effect behavioral relationships, providing an objective analysis grounded in real-world data and trends.
This is crucial as it helps economists, policymakers, and businesses understand the economic activities and patterns in an economy, facilitating informed decision-making.
The objective statements and predictions generated by positive economics can be tested and used to create models and guidelines.
Thus, it serves as a foundation for theoretical and applied economic studies.
Explanation
Positive Economics serves a pivotal role in economic analysis, where it focuses on providing objective and fact-based statements. Essentially, it tends to describe and explain economic behaviors as they currently exist or occurred in the past, without incorporating any personal judgment or values in the analysis.
Through Positive Economics, economists can predict the consequences of certain actions without necessarily approving or disapproving of those outcomes. This is critical in enabling policy makers and business entities in tailoring their strategic actions by providing a factual representation of the economic landscape.
Furthermore, positive economics is widely used to test, validate, or refine economic theories that help in understanding complex phenomena of markets, industries, and economies. For example, it might analyze the effect of a particular change in interest rates on inflation or employment levels.
Positive economic statements can be tested and supported or refuted with evidence, making them fundamental models to guide substantial decision-making in economics, finance, and policy establishment.
Examples of Positive Economics
Positive economics is an economic approach that utilizes objective analysis. It’s focused more on facts, cause-and-effect relationships, and verifiable information, rather than subjective or opinion-based information. Here are three real-world examples of the term:
Inflation and Unemployment: The Phillips Curve is a concept in positive economics that describes an inverse relationship between inflation and unemployment within an economy. For instance, in the U.S., when unemployment rates are low, inflation tends to be higher and vice versa. This is a clear concept in positive economics because it seeks to explain the relationship between these two economic conditions based on empirical evidence and data.
Supply and Demand: The law of supply-demand in economics is a prime example of positive economics. This law states that the price of a product or service will settle at the point where supply meets demand, referred to as the equilibrium price. For example, if the demand for a particular car model increases, the price of that car may also rise due to the increased demand.
GDP Growth: The calculation and analysis of a country’s Gross Domestic Product (GDP) is an example of positive economics. Economists assess the goods and services produced within a country during a specific period to determine the GDP. For instance, if a country’s GDP is growing, it could signify that the country’s economy is in a healthy state. This doesn’t say if it’s good or bad, but simply states a fact based on existing data, which reflects the essence of positive economics.
Frequently Asked Questions about Positive Economics
What is Positive Economics?
Positive Economics refers to the branch of economics that concerns the description and explanation of economic phenomena. It focuses on facts and cause-and-effect behavioral relationships and includes the development and testing of economic theories. It is purely objective and fact-based, where statements are to the point and can be tested or rejected based on empirical evidence.
How does Positive Economics contrast with Normative Economics?
Unlike Normative Economics which expresses value judgments about economic fairness or what economy should be like or what particular policy actions should be recommended, Positive Economics solely focuses on cause and effect relationships and facts. It aims to explain what happens and why it happens, without necessarily stating whether this is right or wrong.
What is an example of Positive Economics?
A classic example of Positive Economics statement would be: “If the price of iPhones falls, a larger quantity will be demanded.” This statement is factual, based on the basic economic principle of demand, and can be tested and either confirmed or refuted by examining the data.
Why is Positive Economics important?
Positive Economics is important for several reasons. Firstly, it provides us with a scientific understanding of how economies work. Secondly, by allowing us to predict how different changes will affect an economy, Positive Economics guides policy makers on how to achieve their goals. Lastly, Positive Economics helps us to evaluate these economic goals and consequences as per the policymakers’ perspective.
Related Entrepreneurship Terms
- Economic Analysis
- Objective Analysis
- Quantifiable Economic Data
- Economic Predictions
- Descriptive Economics
Sources for More Information
- Investopedia: This platform provides a comprehensive insight into all finance-related terms, including positive economics.
- Khan Academy: Khan Academy offers free online courses in various subjects, including economics.
- Economics Help: This site provides detailed explanations and articles on a broad range of economic topics, including positive economics.
- Britannica: An authoritative source for researching a variety of topics, including finance and economics.
