(i) Scope of economics
Question; how does economics differ from other subjects? Economics involves the study of the problem of production, consumption, exchange and distribution of wealth as well as the determination of the values of goods and services. Besides, economics makes an inquiry into the possible causes and remedies of poverty, unemployment, underdevelopment, inflation etc.
The subject consists of a body of general principals and theories which may be applied to the interpretation of all economic problems, post and present. The fundamental economic problem of all nations seeks to address the following issues.
- What goods and services to produce
- How to produce them
- For whom to produce
(ii) Methodology of economics.
There are two approaches to the study of economics namely positive and normative analysis.
1. Positive analysis (deductive): is more central to micro-economics and it is concerned with what is, what was, and what will be. That is it is more specific and objective. It employs economic theory in explaining and predicting circumstances. The economic theories are tested against observations and are used to construct models from which prediction are made.
A theory therefore is a reasoned assumption intended to explain an occurrence or a phenomenon. A model on the other hand is a mathematical representation based on the economic theory.
Incase of controversies in positive analysis, we refer to economic theories that have been proven through empirical observations.
2. Normative analysis (inductive): goes beyond theory to ask questions like “what is best, what ought to be” etc. it is subjective meaning that it depends on value judgment on what is desirable.
Incase of controversies, individual policy choices will rule. It is concerned with alternative policy actions that helps in illuminating and sharpening debates.
Example to help distinguish between positive and normative.
Government imposes tax on a good; effect of this would be
- Increase price of commodity
- Good expensive than competing product
- As quantity demanded falls, firms to decrease number of workers employed. (Positive analysis; what is, what will be)
Normative analysis: For the firm on whom the product has been imposed they would
ask; what should they do to improve their sales?
How should they improve competitiveness (normative – what ought to be)
Wilfykil answered the question on March 6, 2019 at 05:37