Back to: ECONOMICS, FINANCE, & ACCOUNTING
Positive Economics Definition
Positive Economics is a branch of economics that describes and explains economic happenings just the way they are and not the way they ought to be. When explaining an economic phenomenon, positive economics focuses on things as they are and uses obtainable facts to explain what happened or what is currently happening in an economy.
Positive Economics entails investigating the occurrences in an economy and explaining them just the way they are. Facts and verifiable information derived from the investigations can be used to make future projections for an economy.
A Little More on What is Positive Economics
Positive economics is different from normative economics, given that the latter makes a value judgment about occurrences in an economy and describes how situations should be or ought to be. Future predictions are also made in this type of economics using value judgments.
Positive economics is built on one sole tenet, which is to focus on facts and consider cause-and-effect behavioral relationships to explain situations in an economy and also make future projections. The facts obtained as well as the cause-and-effect relationships are helpful when developing economic theories. Positive economics is otherwise called “what is” economics, while the normative counterpart is regarded as “what should or ought to be” study of economics.
Below are the basics points of positive economics;
- Positive economics is an objective study of an economy that describes happenings in an economy as they are without being judgemental about the situations.
- Positive economics is fact-based, all explanations given are backed up with verifiable data. This study also focuses on cause-and-effect behavioral relationships.
- Normative economics is based on value judgments, it describes things as they ought to be or should have been.
- When developing a policy that would make a change in an economy, both positive and normative economics are given consideration.
Testing Positive Economic Theories
Positive economics tells you exactly how it is, was or will be, and supports with data and actual facts. Conclusions made in positive economics can be verified given that they are backed with facts and numbers. When testing positive economic theories, it is important to know what this branch of economics does not seek to render advice or tell policymakers what should be done, rather, it only describes and explains things the way they are and according to findings.
Positive economics entails an objective analysis of an economy. It makes future projections using facts and cause-and-effect behavioral relationships between factors of the economy. Understanding the positive economics studies and analysis of an economy is important when making crucial decisions.
Real-World Example of Positive Economics
This illustration will enhance a proper understanding of how positive economics work in real-life situations;
Country A is experiencing labor congress tussle over an increase in the minimum wage. In this situation, Normative economics will give a value judgment on why the proposed minimum wage should be approved or otherwise, using the “what should have been” or “what ought to be” approach.
Positive economics, on the other hand, would describe the economic situation and explain the proposed increment in minimum wage backing it up facts, verifiable data, actual numbers, and empirical research.