Positive Economics is that perspective of economics which studies the facts of life. It deals with things as they are. It does not focus on how things should be instead of how it should be or trying to alter it. Positive economics is a contrasting perspective as compared to normative economics.
Positive economics deals with what the problems in an economy are and how they are actually solved ? It uses objective analysis in the study of economics. Generally, economists looks at what has happened , and what is currently happening in a given economy to form the basis of their predictions for the future. This process of investigation is Positive economics.
Positive economics is all about causes and effects, behavioral relationships, and the proven facts that are involved in the development and evolution of economic theories.
The function of positive economics is to explore and explain and not to advocate or condemn.
It aims to analyze the existing economic problems and policies, and does not concern itself with what should be the situation in the economy.
It is concerned with analyzing real things that can be supported with evidence, or can be disproved using empirical methods.
It uses what is or what has been happening in a country’s economy as the basis for any statements or predictions about the future.
Identifying Positive Statements
A positive economic statement remains strictly neutral with respect to ultimate ends. It may describe that manufacturing or sale of cigarettes is injurious to health but it does not provide any instruction or judgement as to what policy should be followed to avoid cigarettes in an economy.
Conclusions drawn from such statements analysis can be verified and supported by data. For example, predicting that more people will save if interest rates rise would be based on positive economics, because past behaviors can support it. Given below are a few examples that can help one understand what is meant by a positive economic statement.
- “Raising farm prices in developing countries will improve rural incomes in those countries.”
- “Income inequality exists in all countries.”
- “A reduction in income tax will improve the incentives of the unemployed to find work.”
It should be kept in mind that positive economic statements should not be taken as truth. Positive statements can be verified as true or false by comparing them with actual data.