POSITIVE ECONOMICS: CHARACTERISTICS AND EXAMPLES - ECONOMY - 2025

The positive economics is the study of the economy based on objective analysis. Make an explanation and description of economic phenomena. It is focused on the facts, as well as on the cause and effect relationships of behavior, incorporating both the development and testing of economic theories.

Due to the desire of the population to apply subjective and emotional attributes to a mathematical study, economics was divided into two branches of study, called positive economics and normative economics.

Positive economics is often referred to as the "what is" economics. On the other hand, normative economics is known as the economics of 'what should be'. John Neville Keynes exposed this differentiation, which was later retouched by Milton Friedman in an influential 1953 essay.

Most economists today focus on positive economic analysis, which uses what is happening and what has been happening in an economy as the basis for any statement about the future.

characteristics

As such, the positive economics evades having economic value judgments. A positive economic theory, for example, could detail how an increase in the money supply affects inflation, but without providing any illustration of which policy should be applied.

Even so, positive economics is commonly considered necessary for the classification of economic policies or results in terms of their acceptability, which is normative economics.

Unlike normative economics, positive economics focuses on causes and effects, behavioral relationships, and the facts involved in the evolution and development of economic theories.

As a science, positive economics refers to the study of economic behavior. A standard theoretical statement of positive economics is found in Paul Samuelson's book, Foundations of Economic Analysis (1947).

No opinion

It is based on statements and analysis that can be verifiable and proven. Let's say you are talking about the market and price equilibrium. At one point, balance is what it is. When there is no opinion on it, that statement will fall under this type of economy.

That means that positive economics only talks about descriptive statements and options and that it would not talk about judgments or opinions offered by people (or experts).

The positive economy is an economy that does not set targets for what an economy "should be doing." It describes the equilibrium levels for certain prices and quantities, but gives no opinion on whether that is an appropriate price for the quantity.

You will examine the quantity theory of money and the interest rate, although you will never establish whether an interest rate is good or bad. The "free market" is a system of interaction without limits between each individual and mathematically maximizes personal and social utility.

Importance of positive economics

The differences between positive economics and normative economics are the basis for wise policymaking.

Positive economics and normative economics, when taken together, provide a clear understanding of public policy by highlighting both factual statements and opinion-based analysis, which drive market behavior.

However, a clear understanding of positive economics leads to better economic policy decisions, since positive economics does not depend on value judgments.

Positive statements

Positive economics-driven statements provide a clear cause-and-effect scenario that can help individuals and decision-makers make important decisions.

Positive statements provided by positive economics are objective. These statements can be defined and proven, or rejected and corrected, depending on the available evidence.

Most of the information provided by the media is a combination of positive and normative economic claims or theories. Because of this, investors must understand the difference between objective and subjective analysis.

Examples

The positive economy corresponds to what it is. To illustrate, an example of a positive economic statement is the following: "The unemployment rate in France is higher than in the United States."

Another example of a positive economic statement is: "Raising the interest rate will encourage people to save." This is considered a positive financial statement as it does not contain value judgments, and its accuracy can be verified.

Another example of a positive economic theory is the way it describes how the government impacts inflation by printing more money.

In this example, positive economic theory plays a role in providing data and analyzing the behavioral relationships between inflation and money supply growth.

However, positive economic theory does not provide advice or instructions on how to properly follow policies regarding inflation and money printing.

The law of demand

«When other factors remain constant, if the price increases, the demand decreases; and if the price is reduced, the demand increases «.

This is the law of demand. It's a positive economics statement. Why? Because it says that demand will increase or decrease if prices fall or rise inversely, when other factors remain constant.

It is not an opinion. It is not a value-based description of what it could be. It is not even an expert judgment on price and demand. It is more of a descriptive statement that can be tested or verified. And it can be true or false.

But if it can be true or false, why is such a statement needed? The reason is that you need facts before you comment. It is important to know 'what it is' first, before reaching the point of 'what should be'.

Income is not the same in all countries

This statement does not say whether it is true or false. And it is not an opinion of an economist or an expert. It's just like that. In some countries, this statement may not be true. But since there is a huge gap between rich and poor, and the middle class is rapidly evaporating, this can be said.

This is a positive economics statement because it could be verified by looking at the statistics for various countries. And if most countries are seen to suffer from the extreme upper and lower limits of wealth, this statement will certainly become true. Otherwise we will call it false.

References

1. Investopedia (2018). Positive Economics. Taken from: investopedia.com.
2. Wikipedia, the free encyclopedia (2018). Positive economics. Taken from: en.wikipedia.org.
3. Wallstreetmojo (2018). What is Positive Economics? Taken from: wallstreetmojo.com.
4. Economics Wiki (2018). Positive and Normative Economics. Taken from: economicswiki.com.
5. Quickonomics (2018). Positive and Normative Economics. Taken from: quickonomics.com.