Topics: Economics, Inflation, Macroeconomics Pages: 3 (609 words) Published: May 21, 2013

1.1 Definition of economics

Economics is a social science, positive as well as normative, divided into microeconomics and macroeconomics, concerned with how society allocates limited factor inputs to produce goods and services to satisfy unlimited human wants.

1.2 Economics as a social science

A social science is the study of a particular aspect of human behaviour using the scientific method. Examples of social sciences are economics, sociology and political science. Economists use the scientific method to study human behavior.

- As a science, economics uses the scientific method to formulate and test theories, i.e. economics uses positive analysis to make inquiry. - Since economics is about the study of human behavior, opinions and value judgments are interjected into the analysis.

1.3 Positive economics and normative economics

Positive economics is concerned with facts. It tells us what was, what is or what will be. Disagreement over positive economics can be settled by an appeal to facts. In other words, positive economics is verifiable.

Consider the following statement.

“A decrease in personal income tax will lead to a rise in unemployment.”

In the above statement, both personal income tax and unemployment are measurable and hence the statement is verifiable. Therefore, the above statement is a positive statement. It is important to take note that a positive statement can be a true or false. What makes the above statement a positive statement is not that it is true but that it is verifiable. In fact, the above statement is false.

Normative economics is concerned with value judgments. It tells us what should be. Disagreement over normative economics cannot be settled by an appeal to facts. In other words, normative economics is not verifiable.

Consider the following statement.

“A redistribution of income from the rich to the poor will increase national welfare.”

In the...
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