Chapter 1: Problem 20

What is the difference between positive economics and normative economics? Between microeconomics and macroeconomics?

Short Answer

Expert verified

Positive economics is objective and testable and describes how things are, while normative economics is subjective, untestable, and describes how things should be. Microeconomics focuses on individual units in an economy, while macroeconomics studies the economy as a whole.

Step by step solution

Define Positive and Normative Economics

Positive economics concerns objective and fact-based statements - explaining and describing how things are. Normative economics presents subjective and value-based statements, which suggest how things should be. In other words, positive economics deals with what ‘is,’ while normative economics deals with what ‘ought to be.’

Differences between Positive and Normative Economics

Positive economics can be tested and either confirmed or refuted, while normative economics, by reason of being subjective and value-based, can't be tested. It remains an opinion or belief about how economics should operate.

Define Micro and Macroeconomics

Microeconomics is the study of individual units in an economy like a household, a firm, or an industry. Macroeconomics, on the other hand, is the study of the economy as a whole, including inflation, unemployment, and economic growth.

Differences between Micro and Macroeconomics

Microeconomics focusses on understanding the economic behavior at an individual level whereas, macroeconomics focusses on broader economic phenomena that affect entire economies. The former would analyze how a specific company could maximize its production and capacity so it could lower prices and better compete in its industry. The later would look at economic factors such as national productivity, interest rates, and inflation rates.

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