Microeconomic Analysis
Theories are used to explain observed phenomena in terms of a set of basic rules and assumptions. For example, the theory of the firm or the theory of consumer behavior.
Theories are used to explain observed phenomena in terms of a set of basic rules and assumptions. For example, the theory of the firm or the theory of consumer behavior.
Models:
A mathematical representation of a theory used to make a prediction.
A mathematical representation of a theory used to make a prediction.
Validating a Theory
The validity of a theory is determined by the quality of its prediction, given the assumptions.
Evolving the Theory
Testing and refining theories is central to the development of the science of economics.
POSITIVE VERSUS NORMATIVE ECONOMICS
Positive economics deals with the observations or predictions of the facts of economic life. For example:
What will be the impact of an increase in wages on the price of a product? Normative Economics is the value judgments about how economics should operate, based on
certain moral principles or preferences?” For example:
What wage rate should be paid to the auto workers to make them an active member of the society?
The validity of a theory is determined by the quality of its prediction, given the assumptions.
Evolving the Theory
Testing and refining theories is central to the development of the science of economics.
POSITIVE VERSUS NORMATIVE ECONOMICS
Positive economics deals with the observations or predictions of the facts of economic life. For example:
What will be the impact of an increase in wages on the price of a product? Normative Economics is the value judgments about how economics should operate, based on
certain moral principles or preferences?” For example:
What wage rate should be paid to the auto workers to make them an active member of the society?
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