Chapter 2: How Economists Work
Positive versus Normative
• Statements of what “is” or “was” or “will be”. They are testable as to whether
they are right or wrong.
• Increasing the minimum wage increases youth unemployment
• Taxing carbon emissions reduces carbon emissions
• Statements of what “should be”.Avalue judgment is being made and so there is
no right or wrong. You can use positive analysis to base decisions that are
normative in nature.
• We should decrease the minimum wage
• We should tax carbon
In this course, we will focus primarily on positive analysis but when we discuss policy
issues normative aspects will come into play.
Disagreements in Economics
• Can be based on the positive
• Is this the right model to analyze the phenomenon/question being studied?
• Does the empirical analysis really test the positive proposition?
• But also on the normative
• Differences in value judgments over the relative importance of various (possibly
competing) policy goals
• Economics is a social science • As such it adheres to the scientific method
• Theories are proposed, tested, and modified or discarded as indicated – continual
• Given the