Microeconomic Analysis: This is an area of Economic analysis that deals with the study and analysis of individual units of an economy. For example the households or the consumer as individuals themselves. But this time, it does not just deal with normal microeconomic thought but also careful analysis and understanding behind the actions and decisions of consumer and behaviour. Making both positive and normative economic statements based on actions and the rationality of consumers alike.
Positive Microeconomic Analysis: This is a sub-area of microeconomic analysis that deals with facts and data validated by empirical studies that can be documented and argued based on experimentations and evidence. It is to be taken note of that all these analyses based on “what is” and not “what ought to be” are at a microeconomic level and the reasoning and analysis are deductive and not inductive by nature. Positive microeconomic analysis is purely based on facts and subjective value-judgements do not influence its economic thinking process. An example of a positive microeconomic analytic statement is: “If individuals are to have higher income, demand for goods will increase due to higher purchasing power of their income.”. This statement is based on facts, theories, and laws and not prescriptive analysis on what should be done about an economic issue.
Normative Microeconomic Analysis: This is another sub-area of microeconomic analysis that deals with prescriptions and ideas on what should be done considering a particular economic issue but at a microeconomic level. These analyses are based on “what ought to be” and not “what is” unlike positive microeconomic analysis. However, normative microeconomic analysis is based on deductive reasoning and not inductive because it focuses largely on the individual units of an economy and its studies are not based on generalizations of studies on the economy at a wider view. This is because it is microeconomic by nature. An example of a normative microeconomic analytical statement is: “Individuals should increase their spending so that business will produce more goods.”. This statement is purely based on subjective value judgements at a microeconomic level and as thus have no objective proof whatsoever and are not based on empirical findings or research either.
Positive Vs Normative Microeconomic Analysis
Simply and concisely put, the major difference between the two is that Positive analysis (micro level) is based on objective proof and empirical findings. While normative analysis is based on subjective value judgements and feelings about how an economic issue should be solved, all these at a micro level. Positive microeconomic analysis deals with “what is”-factual evidence and validations based on empirical findings from experiments on economic society, thus is objective in nature and is in no way bias. However, normative microeconomic analysis is based on feelings with no objective proof from studies or experiments. Based on value judgements which are subjective by nature. In some way positive microeconomic analysis leans towards the scientific side while the normative leans towards an art discipline.
THE IMPORTANCE OF THEORIES IN POSITIVE MICROECONOMIC ANALYSIS
Theories are hypotheses which have been continually and rigorously tested to prove its validity based on empirical findings from several experiments. Theories are scientific by nature as Science relies on theories to simply explain natural phenomena. This is scientific method, through the use of experiments, data and sometimes mathematical computations to explain natural phenomena and in the case of Economics, it is used to explain human behaviour in society. This is where positive microeconomic analysis comes into play. Positive economic analysis by nature deals with the analysis and explanation of economic reality and phenomena with the use of empirical data from validations of experiments. When an experiment is undertaken and validated, it is done so in order to validate and prove a hypothesis in order for it to become a theory. Thus, theories are invaluable in Positive microeconomic analysis and because theories are backed by objectivity and validation. It is used as a standpoint in positive analysis in order to reflect its objective nature based on facts as theories themselves are facts based on several experimentations and validations.
WHY IS A QUANTITATIVE METHOD IMPORTANT IN THE STUDY OF ECONOMICS?
Economics is a social science and is thus a science by nature, it adopts scientific method to clearly explain economic issues and phenomena in general. Therefore, as a science it deals with facts and empirical studies, experimentations, numbers, mathematical computations and data. All these make quantitative method in Economics very important as without it, it will be missing the scientific element. Quantitative method deals with the computation of numbers and data. This is a very significant part of Economics as Economics deals a lot with numbers. Moreover, economists are now favouring the use of Mathematical solutions (Econometrics and Statistics) to explain the complex relationships that exist between numerous individuals and economy-wide components in a more simplified manner. This is because it is more bias-free and is very objective as it deals with facts and not assumptions or recommendations based on subjective value judgements. Therefore, the quantitative method remains an invaluable part of Economics as it makes simplification of Economic reality simpler and straightforward.
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