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What is Positive Economics? - Definition, Methodology & Examples

What is Positive Economics? - Definition, Methodology & Examples
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  • 0:00 Positive Economics Defined
  • 1:57 Methodology
  • 3:27 Example of Positive Economics
  • 4:47 Lesson Summary
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Lesson Transcript
Instructor: Aaron Hill

Aaron has worked in the financial industry for 14 years and has Accounting & Economics degree and masters in Business Administration. He is an accredited wealth manager.

Learn about the difference between the science and the art of economics. Find out the difference between positive and normative economics and why it is important to distinguish between them.

Positive Economics Defined

The more you study economics, the more you'ill find that there is both an art and a science aspect to this field. It is important to know when economists are focusing on the science side, with objective fact-based reasoning, and when they are emulating the art side, with an opinion-based approach. The science side is often referred to as positive economics and is the branch of economics that is objective and fact-based. Positive economic statements do not have to be true, but they do need to be statements that can be validated as correct or incorrect. The statement 'Government Medicaid for low-income families increases the costs for all taxpayers' is a positive statement. It can be proved or disproved through analytical data.

Positive economics uses step-by-step procedures to validate statements in a similar way to the physical sciences. This scientific approach is important because it gives economists the credibility that is needed to influence many of our state and federal government policies dealing with taxes, interest rates, healthcare spending, money supply and so forth.

It's important to note that positive economics is often studied in contrast to normative economics. This branch is the art side of economics. These statements are rooted in opinion and are difficult to prove or disprove. Normative statements usually use factual evidence as support, but are heavily focused on the individuals' own opinions and value systems. When someone says 'The government shouldn't help low-income families through Medicaid,' she or he is making a normative statement that is rooted in her or his own beliefs and values.

Positive economics is sometimes referred to as the economics of what is, whereas normative economics focuses on what ought to be. The difference can be hard to distinguish at times, and it's important to note that economic and government topics can be supported by a mix of the art and the science of economics.

Methodology

If you've ever taken a high school science course, you probably had to use some scientific reasoning or method to prove something. Your professor told you that you must follow a list of steps to solve your problem. Since positive economics is more on the science side of economics, it follows virtually the same procedures as the scientific method. Its goal is to use experimental testing and data to determine whether a hypothesis or economic statement is valid.

Positive economists often follow various step-by-step procedures to prove something. The method can be slightly different based on the person and the situation, but it is often similar to the following steps:

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