Economics as a Positive Science

The Distinction between Positive and Normative Statements

• Positive Statements

• Statements which tell as what was, what is and what will be are called positive statements.

• Positive statements are basically about matters of fact. Disagreements over positive statements can be settled by an appeal to the facts, i.e. by observation of the real world.

• Examples

• I was born in Beijing.

• Helen is studying economics in the library.

• I will get an A in AL economics examination two years later.

• How can we know whether the above statements are right or wrong?

• Normative Statements

• Statements about how things ought to be are called normative statements. Thus, normative statements involve value judgement which cannot be refuted through reasoning or an appeal to facts.

• Examples• You should be good to your parents.• You should respect your Economics teacher, Mr

So.• Progressive tax system is good because it can help

the poor.• How can we know whether the above statements

are right or wrong?

• Positive Economics

• Positive economics only describes and relate observable facts without saying whether they are good or bad. In other words, it only deals with positive statements.

• Examples

• If the price of a good increases, the quantity demanded will increase, other things being constant.

• If money supply increases, inflation rate will increase.

• If the supply of a good decreases, the price of the good will increase, other things being constant.

Economic Theory

• Example: Demand Theory

• If the price of a good increases, the quantity demanded of it will decrease, other things being constant.

• A theory consists of:

1. variables (dependent and independent)

2. assumption(s)

3. hypotheses

4.prediction(s)

Characteristics of Scientific Theories

• What are the uses of theories?

• What are the differences between scientific theories and superstition?

• Is it possible to prove that a theory is always right?

• Testable

• (If you are kind to you parents, you will go to heaven after you die.)

• Refutable

• A scientific theory must be potentially refutable.

• If I were the Manager, I would earn more profit for the company than Mr Lee.

• If I were the Chief Executive of Hong Kong, I could do better than Mr Tung.

Tautology

• My father is a man.

• (My father is a good man)

• I like it because I like it.

• (I like it because it is very tasty.)

• Our employment problem will be solved if the unemployed find jobs.

Quiz

• What is the difference between positive statements and normative statements?

• What are the uses of scientific theories?

• What are the 4 basic elements of a scientific theory?