Positive Economics

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What is Positive Economics?

Positive economics talks about things that “are”. They are facts. They can be verifiable. You can prove it or disprove it. You can test it. And you can find out whether these statements mentioned under positive economics are true or untrue.

It is based on statements and analyses which can be verifiable and tested. Let’s say that we are talking about the market and price equilibrium. At a point, the equilibrium is what it is. When there’s no opinion on it that statement will fall under this type of economics. That means it talks only about the descriptive options and statements and it would not talk anything about the judgments or opinions offered by people (or experts).

Foundations of positive economics

If you follow a chronological sequence, then we need to go back to the year 1891. John Neville Keynes first talked about the differences between positive economics and normative economics. He mentioned that this economics depicts “what is” and normative economics portrays “what ought to be”.

Then, in 1947, Paul A. Samuelson published a book from Harvard University Press – Foundations of Economic Analysis. In this book, he labelled the statements under positive economics as “operationally meaningful theorem”.

Later, in a 1953 book named “Essays in Positive Economics”, Milton Friedman talked about their methodology.

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Positive Economics Examples

You would agree that without examples, economics is not an easy subject to handle. Well, in this section, we will take some examples of positive economics and will explain why we call them positive economics statements.

Example#1

The law of demand – “If other factors remain constant, if price rises, demand declines; and if price decreases, demand inclines.”

This is the law of demand. It is a positive economics statement. Why? Because it says that demand will rise or fall if prices fall or rise in inverse proportion; when other factors remain constant. It is not an opinion. It is not a value-based description of what could be. It is not even a judgment of an expert stating about the price and demand. It is rather a descriptive statement which can be tested or verified. And it can be true or false.

But if it can be true or false, why we need these sorts of statements? The reason is we need facts before we opine. It is important to know “what is”, before we get to reach to the point of “what ought to be”.

Example#2

Income isn’t equal in all countries.

This statement again doesn’t tell whether it’s true or false. And it’s not also an opinion of an economist or an expert. Rather it simply is. In some countries, this statement may not be true. But since there is a huge gap between rich and poor and as the middle class is quickly evaporating; we can state this.

This is positive economics statement because we would be able to verify it by looking at the statistics of various countries. And if we see that most of the countries suffer from the extreme upper and lower limit in wealth, this statement will certainly become the truth. Otherwise, we will call it false.

Example#3

When Government levies more taxes on tobacco, people started smoking less.

Ask any addicted smoker and you would see that this statement isn’t true at all and that’s why it’s a positive economics statement. Usually, when government levies huge taxes on tobacco, people stop/reduce smoking. It’s not an opinion since it is the fact (or opposite of fact). And as a result, we can verify by looking at the various statistics.

If an economist or expert offers his/her sagacious comment, then this statement will turn into a statement that falls under normative economics.