Is microeconomics a positive or normative science?

positive and normative science

It's important to understand the difference between positive and normative science before getting into whether microeconomics is a positive or normative science. According to J.M. Keynes, a positive science is organised knowledge about what exists right now, while a normative science is concerned with what should exist and focuses on values instead of facts. Friedman makes it even clearer that the goal of a positive science is to come up with theories or ideas that can predict things that haven't happened yet in a way that makes sense. He argues that the goal of normative science is to come up with ideas about what should happen based on values and ideals.

When we apply these concepts to economics, we see that they cover both positive and normative phenomena. And this is because, as a social science, economics looks at both the present situation ("what is") and the ideal state of things ("what ought to be"). As a result, microeconomics, which is a branch of economics, has parts of both positive and normative science. Microeconomics uses positive analysis to understand how individuals make decisions based on self-interest and normative analysis to evaluate whether those decisions lead to efficient outcomes.

For example, in microeconomics, a positive analysis may involve studying how consumers choose to allocate their income among different goods and services based on their preferences and budget constraints. On the other hand, a normative analysis could involve evaluating whether government intervention in the form of price controls or subsidies would lead to a more equitable distribution of resources among society.

Let's look into the aforementioned issues further.

Microeconomics as a Positive Science

Microeconomics is a wonderful field of economics that tries to break down and explain economic events in their most basic form. Microeconomics is a positive study that looks into basic questions like "what is," "why is it that way," and "what will be." Take a look at these questions:

1. What factors influence consumer decisions when choosing between luxury and essential items?

2. How do changes in technology impact the production processes of businesses in the digital era?

3. What motivates individuals to invest in sustainable and environmentally-friendly products?

4. How do global economic trends affect the pricing strategies of multinational corporations?

5. What role does government policy play in shaping income distribution within a society?

Microeconomic analysis is built around these questions, which are based in the positive world.

Microeconomics is a positive science that tries to figure out how people make economic decisions in certain situations. Microeconomics shows how complex the relationships are between small-scale economic factors by looking at how they change when the economy does. Fundamentally, microeconomics tries to figure out what causes what in economic events and how to predict them. Friedman said it so well: "The positive form of economics is made up of tentatively accepted generalisations that can predict what will happen when things change." This feeling is very strong in microeconomics, where making generalisations is the main way to predict what will happen in the economy at the micro level.

Microeconomics as a Normative Science

The normative nature of microeconomics means that it tries to answer the basic question of "what should be" based on social norms and ideals. When you look at "what people do" or "what happens in the market," you can see that some acts might not be good for society. Take the profitable trade in drugs like cigarettes and drink as an example. Even though the things are profitable, people should think about whether or not making and selling them is good for society. Because this question comes from the public interest, microeconomics, which is a social science, looks at whether or not these kinds of actions are good for society. To figure out whether these things are desirable to society, they are carefully weighed against the social costs and benefits of making and selling them.

Consider a pressing issue in urban transportation, particularly in densely populated cities like São Paulo, Brazil. With increasing urbanization and limited infrastructure, unregulated ride-sharing fares could surge, disproportionately impacting commuters. Hence, the crucial question arises: "Should ride-sharing fares be determined solely by market forces, or should governmental interventions be introduced to ensure fair pricing and accessibility for all?" This ethical dilemma, rooted in societal welfare, prompts microeconomics to scrutinize and advocate for a transportation pricing model that serves the interests of both commuters and service providers.

Microeconomics is a normative study, which means it makes value judgements about what is "good" or "bad" for society. People have these beliefs because they want to be moral, ethical, social, and political. Microeconomics is a prescriptive science because it tells us how to fix bad economic situations. It uses this power to help solve problems in society.

Think about the strange situation of the world producing too many food grains while many people are hungry and malnourished in many areas. In positive microeconomics, the rules that set prices in global food markets are broken down. In normative microeconomics, on the other hand, the important question of how to control food grain costs to end world hunger is raised. This two-pronged method shows how complex microeconomics is; it includes both positive analysis and normative considerations, especially when trying to solve global problems like food insecurity that are hard to solve.

However, it's important to remember that microeconomics is a positive study at its core. It takes on a moral role when economic theories are used to look at economic events from the point of view of what is good for society, support changes in public policy, and judge government actions.

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