Question

What do you mean by positive economic analysis?

Hint:

Positive economic analysis is objective and fact-based, aiming to explain how the economy functions, while normative analysis involves subjective opinions about economic outcomes.

Answer 1

Positive economic analysis refers to the branch of economics that deals with objective analysis of economic phenomena. It focuses on what is and seeks to explain how the economy operates without making any judgments about its outcomes. This type of analysis is based on facts, data, and observable relationships. The goal is to understand economic behavior and predict future trends.

Step 1: Characteristics of Positive Economic Analysis.
- Objectivity: Positive economic analysis does not involve any subjective opinions or value judgments. It relies on empirical evidence and observable data.
- Descriptive in Nature: It describes economic phenomena as they are, without prescribing solutions or suggesting whether they are good or bad.
- Causal Relationships: Positive analysis looks for cause-and-effect relationships in the economy, such as how a change in interest rates affects investment or how government policies impact inflation.

Step 2: Examples of Positive Economic Analysis.
- The law of demand: Positive analysis can explain how the quantity demanded of a good decreases as its price increases, holding other factors constant.
- Price elasticity of demand: Positive analysis can measure how sensitive the quantity demanded of a good is to changes in its price.

Step 3: Difference from Normative Analysis.
Positive economic analysis is different from normative economic analysis, which involves value judgments about what ought to be. While positive analysis focuses on facts and cause-effect relationships, normative analysis is concerned with policies and what is desirable or undesirable for society.