Economics is used in two important ways today. The first is to describe, explain and predict the behaviour of production, inflation, incomes etc. But for many, the fruit of such labours is found in a second task – to improve economic performance. Thus, we first attempt to describe the hardships of poverty. We then might present programmes that could reduce the extent of poverty. Or we might start with an analysis of how higher energy taxes would lead to lower energy consumption. We might then conclude that the country should raise its gasoline taxes. In each case, we first engage in positive economics, and then in normative economics. Positive and Normative Economics You may already have strong personal views about what sort of economic society we should have e.g. whether a free market “capitalist” economy is desirable, or whether a “communist” command economy is preferable. In our study of economics, one of the central distinctions is between a value judgement and a factual statement. Positive Economics is concerned with the objective statements about what does happen or what will happen. It limits itself to statements that can be verified by reference to facts e.g. How does a higher level of unemployment affect inflation or how will a gasoline tax affect gasoline usage? A positive approach is more objective, and more scientific and it is the approach we shall try to take in our study of economics here. Normative Economics, on the other hand, appreciates that in practice many economic decisions involve subjective judgements; that its, they cannot be made solely by an objective appraisal of the facts but depend to some extent on personal views in interpreting facts – ethics and value judgements. They can be argued about but they can never be settled by science or by appeal to facts, e.g. should taxation soak the rich to help the poor? Or should the defence spending grow at 3 or 5 or 10 per cent per year? They involve what ought to be and are settled by political choice.
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