Micro
and macro economic analysis can be positive or normative. Positive economics is
concerned with the analysis of what obtains in the economy. It seeks to explain
how the economy works, proposing theories and scientific explanations of what
is in the economy. It seeks to analyze,
for example, what has led to a fall in demand; why unemployment is low this
year compared to last year; what will happen to consumption expenditure when
there is an increase in taxes etc. There is significant agreement among
economists in the area of positive economics,
and macro economic analysis can be positive or normative. Positive economics is
concerned with the analysis of what obtains in the economy. It seeks to explain
how the economy works, proposing theories and scientific explanations of what
is in the economy. It seeks to analyze,
for example, what has led to a fall in demand; why unemployment is low this
year compared to last year; what will happen to consumption expenditure when
there is an increase in taxes etc. There is significant agreement among
economists in the area of positive economics,
especially in relation to microeconomic
relationships. It is generally agreed, for example, that an increase in price
would reduce the quantity demanded of a normal good.
Also,
when demand exceeds supply for a commodity, a shortage is created and it is
agreed in general that such shortage would lead to a rise in price. Also, the
imposition of a value-added tax on a product would increase the price of the product.
However, in the field of macroeconomics, disagreements do exist among economist
in relation to positive economic analysis. For example, economists may disagree
on why the aggregate price level is higher this year than the previous year and
whether a fall in the value of a national currency would increase or reduce net
exports. Ruffin and Gregory attribute such disagreement to the fact that
macroeconomics unlike microeconomics is a relatively young field. Moreover,
analyzing the economic behavior of individuals in a collective sense is a more
difficult task since both man him and the events around him can be erratic and
unpredictable.
when demand exceeds supply for a commodity, a shortage is created and it is
agreed in general that such shortage would lead to a rise in price. Also, the
imposition of a value-added tax on a product would increase the price of the product.
However, in the field of macroeconomics, disagreements do exist among economist
in relation to positive economic analysis. For example, economists may disagree
on why the aggregate price level is higher this year than the previous year and
whether a fall in the value of a national currency would increase or reduce net
exports. Ruffin and Gregory attribute such disagreement to the fact that
macroeconomics unlike microeconomics is a relatively young field. Moreover,
analyzing the economic behavior of individuals in a collective sense is a more
difficult task since both man him and the events around him can be erratic and
unpredictable.
Unlike
positive economics, normative economics is concerned with the question of what
should be rather than analyzing what is. Should the problem of resource
allocation be left to the market system to solve or should the government take
absolute charge of resource allocation? Should the government own enterprises
or simply maintain law and order? Should a progressive tax (a tax that takes
more from the rich than from the poor)or a regressive tax system be introduced?
Should ownership of property by individuals be taxed?
positive economics, normative economics is concerned with the question of what
should be rather than analyzing what is. Should the problem of resource
allocation be left to the market system to solve or should the government take
absolute charge of resource allocation? Should the government own enterprises
or simply maintain law and order? Should a progressive tax (a tax that takes
more from the rich than from the poor)or a regressive tax system be introduced?
Should ownership of property by individuals be taxed?
Should
the government use monetary or fiscal policy to bring about output
stabilization? Should an income policy be introduced? What should be done to
alleviate or perhaps eradicate poverty in the society? As evident in the
questions themselves, the answers to them will depend on the value judgment of
the individual. An opinion sampling from even as few as two individuals (who
may be economists) may yield different answers for each and all of the above
questions. The individual who prefers an egalitarian society where all are
equal and none owns any significant part of the society’s resources would call
for the government to take over the allocation of resources, or impose a
progressive tax structure or a policy that redistributes income from the rich
to the poor.
the government use monetary or fiscal policy to bring about output
stabilization? Should an income policy be introduced? What should be done to
alleviate or perhaps eradicate poverty in the society? As evident in the
questions themselves, the answers to them will depend on the value judgment of
the individual. An opinion sampling from even as few as two individuals (who
may be economists) may yield different answers for each and all of the above
questions. The individual who prefers an egalitarian society where all are
equal and none owns any significant part of the society’s resources would call
for the government to take over the allocation of resources, or impose a
progressive tax structure or a policy that redistributes income from the rich
to the poor.
The
other, who believes in rewarding each individual according to his ability and
allowing him to get whatever he can from the society, will canvass for a free
market system and perhaps a system of proportional income taxation with little
or no tax on personal ownership of properties. Similarly, the monetary will
recommend that the government utilize monetary policy while the core Keynesian
will call for the use of fiscal policy. Hence, normative economics is based on
subjective (value) judgment of individuals. From realizing the various
alternative solutions to a problem to prescribing the best solution, people
jump from scientific reasoning and analysis to ethical judgment.
other, who believes in rewarding each individual according to his ability and
allowing him to get whatever he can from the society, will canvass for a free
market system and perhaps a system of proportional income taxation with little
or no tax on personal ownership of properties. Similarly, the monetary will
recommend that the government utilize monetary policy while the core Keynesian
will call for the use of fiscal policy. Hence, normative economics is based on
subjective (value) judgment of individuals. From realizing the various
alternative solutions to a problem to prescribing the best solution, people
jump from scientific reasoning and analysis to ethical judgment.
It
must however be noted that even though normative economics deals with what
should be, positive economics can be used to analyze a normative issue. For
example, economists can analyze positively what are the consequences of adopting
a free market or central (Government) allocation system to solve the problem of
resource distribution, or the consequences or benefits of imposing a property
tax, a regressive tax or progressive tax structure. However, positive economics
ends there. The decision as to which should be adopted is a normative issue
which depends on the individual’s personal judgment as to the desirability or otherwise
of the benefits or consequences presented.
must however be noted that even though normative economics deals with what
should be, positive economics can be used to analyze a normative issue. For
example, economists can analyze positively what are the consequences of adopting
a free market or central (Government) allocation system to solve the problem of
resource distribution, or the consequences or benefits of imposing a property
tax, a regressive tax or progressive tax structure. However, positive economics
ends there. The decision as to which should be adopted is a normative issue
which depends on the individual’s personal judgment as to the desirability or otherwise
of the benefits or consequences presented.
