Positive Economics

Published Oct 25, 2023

Definition of Positive Economics

Positive economics is a branch of economics that focuses on objective analysis and the study of economic phenomena as they are, without making value judgments or prescribing how things ought to be. It is concerned with scientific, fact-based analysis and seeks to provide explanations of economic phenomena and predict their future behavior based on empirical evidence and data.

Example

To illustrate positive economics, let’s look at the relationship between minimum wage and employment levels. Positive economics would analyze the available data and conduct empirical studies to determine the effects of increasing the minimum wage on employment rates. It would examine statistical evidence, such as historical trends and correlations, to understand the relationship between minimum wage changes and employment levels in different regions and time periods.

Based on the analysis, positive economics may find that there is a negative correlation between increases in minimum wage and employment levels. This means that when the minimum wage is raised, there is a tendency for employment levels to decrease. This finding is derived from objective analysis of the available data and does not make any value judgments about the desirability of minimum wage policies.

Why Positive Economics Matters

Positive economics is important because it provides a scientific and empirical foundation for understanding and analyzing economic phenomena. By examining real-world data and conducting objective analysis, positive economics helps policymakers, businesses, and individuals make informed decisions based on facts rather than subjective opinions or biases.

By understanding the economic implications of different policies or actions, positive economics allows for the prediction and evaluation of various economic outcomes. It helps economists and policymakers understand the likely consequences of their decisions and inform the public of the potential effects of economic policies.

Ultimately, positive economics provides a valuable framework for understanding how economic systems function and helps inform discussions and debates around economic issues. It allows for evidence-based decision-making and contributes to a more rigorous and comprehensive understanding of the complex workings of the economy.