Economics as a Positive Science

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Economics as a Positive Science
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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.

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• 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?

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• 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.

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• 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?

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• 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.

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• 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.

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Economic Theory

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

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• A theory consists of
• 1. variables (dependent and independent)
• 2. assumption(s)
• 3. hypotheses
• 4. prediction(s)

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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?

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• Testable
• (If you are kind to you parents, you will go to
  heaven after you die.)
• Refutable
• A scientific theory must be potentially refutable.

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• 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.

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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.

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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?