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Definition of Positive Economics:
is the type of economics that examines how the world works; economists generally use it for cause and effects. Positive economics involve facts.
In positive economics, economists examine how the world works by looking at causes and effects. Generally, the ideas they examine are testable and their method of inquiry does not include value judgment. They make positive statements of fact and exclude all personal interpretation or perspective. For example, assume that the government determines that income should be redistributed. This is normative economics. Once decided, economists use positive economics to determine the best way to achieve efficient income distribution by looking at different tax structures. The testing is objective and does not consider value judgments.
Judy’s Car Wash offers another example of the difference between positive and normative economics. Sales at Judy’s Car Wash increased 9% during the past year. The industry average was only 5%, but Judy was very aggressive in her advertising campaign and exceeded the average. But Judy was still disappointed because she had expected a 15% increase. “Judy’s Car Wash sales increased 9%” is a positive statement. It is a fact. “The increase in sales at Judy’s Car Wash was disappointing” is a normative statement because it is an opinion. For Judy, the sales increase was disappointing, but for her banker, the sales increase may have been encouraging.