Transcript Positive and Normative Economics

Do now: Address the question below to the best
of your ability.
Tom has two two choices. He can either spend
his money on:
1. Going to the movies with friends $10.00
2. Buying his Dad a baseball cap for his
birthday : $12.00
Tom chooses to go to the movies.
What did the choice of this opportunity cost
Tom?
Once you use a resource (time, money etc…) you
cannot use it again.
Therefore the opportunity-cost of going to the
movies has cost Tom:
•The $10. 00 spent for the movies.
•The opportunity of buy his dad the baseball cap
•The time that he spent at the movies
the “opportunity cost” of a resource, means the value
of the next-highest-valued alternative that can use that
resource.
Economics as a Positive Science
The Distinction between Positive
and Normative Economics
Positive Economics - is objective and fact based.
They must be able to be tested and proved or
disproved.
Normative Economics is subjective and value
based. Since they are opinion based, they cannot
be proved or disproved.
EXAMPLES:
Positive
Normative
Government run
healthcare increases
how much people
spend on healthcare.
The government
should provide basic
healthcare to
everybody.
The United States
has the largest
number of cars, per
capita.
Americans enjoy
driving more than the
people of other
nations.
How could you try and prove these
“positive economic” statements?
Government run
healthcare increases
how much people
spend on healthcare.
The United States
has the largest
number of cars, per
capita.
The Tools of Economics
The Scientific Method
PROBLEM:
• Economics cannot usually be tested in
a laboratory.
– Therefore economists must analyze
existing data to come to conclusions
about their topic
Graphs – a two dimensional
representation of the relationship
of two given sets of data.
These sets of data are usually known as variables.
A variable is a quantity that can change
• 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.
• 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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Examples
I was born in Beijing.
Helen is studying economics in the library.
My economics class has been changed to
Tuesday.
How can we know whether the above
statements are right or wrong?
• Testable
• (If you are kind to you parents, you will go
to heaven after you die.)
• Refutable
• A scientific theory must be potentially
refutable.
• 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.
• 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.
• 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.
Hypothetical Situation:
Every time the temperature in
Florida goes above 95 for an entite
week, the price of grapefruits per
pound increases
What sort of research would you need to do to
prove this statement is TRUE ?
What information would you need to have?
1. In your notebook, propose an
economic topic that could be
examined with the scientific
method.
2. Using the “Scientific Method
Chart” that you have copied,
create a hypothetical step by
step examination of the issue
you have proposed.
The Scientific Method
• A theory consists of:
1. variables (dependent and independent)
2. assumption(s)
3. hypotheses
4.prediction(s)
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?
Economic Theory
• Example: Demand Theory
• If the price of a good increases, the quantity
demanded of it will decrease, other things
being constant.
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?