What is Positive Analysis?
It is a process of breaking up complex topics or subjects into smaller parts to make it more comprehensive. EconomicAnalysis is nothing but the study of use of available factors of production (land, labour, capital and entrepreneur) as efficiently as possible so as to give maximum satisfaction to the society in terms of fulfilling their demands for goods and services.
The problem is where as wants are virtually unlimited, resources to fulfil these wants is limited in nature. This problem is termed as scarcity of resources. This gives rise to another problem that is problem of making choices all the time. For example if resources are to be devoted in production of guns then production of butter is to be sacrificed owing to the problem of scarce resources.
Positive Economics, in contrast to normative economics which is based on value judgements, is one of the most favoured phenomenons in economic thinking. It uses the facts i.e. what is and what has been occurring in an economy to make statements about the future.
Any statement whose accuracy can be tested makes apart of positive economics, suppose if we comment that ‘ increasing the interest rates in an economy will induce people to save more’ is a positive statement as it can be verified against facts.
In this case statements mostly relate to what ‘is’, ‘was’ and ‘will be’. Any statement that can be verified against facts or at-least which has logic of its disapproval can come under the category of positive statements in economics. If we say that the ‘moon is formed out of gases and no solid substances’ then, this kind of statement although is factually incorrect but is still a positive statement as it is testable against facts available already.
In the same context if we pass a statement that ‘ the world would have been a better place if the moon was made out of gases rather than solid substances’ then, for this kind of statement there is no way in which one can disapprove. Thus, it is a Normative Statement.
Both positive and normative analysis should be combined to reflect upon the economic issues in a country. Economists should make a value judgement (normative approach) about the goals to be attained by an economy and then find ways to attain them systematically (positive approach).
Some statements cannot be categorized in to the category of positive or normative statements. Suppose if we say "The minimum pay law is a bad law."
Then, it is possible to put it into both the categorise thinking of it as a value judgment and even as a fact which can be verified.
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