Economics as a Positive Science

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• Do now Address the question below to the best of
  your ability.
• Tom has two two choices. He can either spend his
  money on
• Going to the movies with friends 10.00
• Buying his Dad a baseball cap for his birthday
  12.00
• Tom chooses to go to the movies.
• What did the choice of this opportunity cost Tom?

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• Once you use a resource (time, money etc) you
  cannot use it again.
• Therefore the opportunity-cost of going to the
  movies has cost Tom
• The 10. 00 spent for the movies.
• The opportunity of buy his dad the baseball cap
• The time that he spent at the movies
• the opportunity cost of a resource, means the
  value of the next-highest-valued alternative that
  can use that resource.

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Economics as a Positive Science
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The Distinction between Positive and Normative
Economics

• Positive Economics - is objective and fact based.
  They must be able to be tested and proved or
  disproved.
• Normative Economics is subjective and value
  based. Since they are opinion based, they cannot
  be proved or disproved.

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EXAMPLESPositive Normative

• Government run healthcare increases how much
  people spend on healthcare.
• The United States has the largest number of cars,
  per capita.

The government should provide basic healthcare to
everybody. Americans enjoy driving more than
the people of other nations.
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How could you try and prove these positive
economic statements?

• Government run healthcare increases how much
  people spend on healthcare.
• The United States has the largest number of cars,
  per capita.

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The Tools of Economics
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The Scientific Method
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PROBLEM

• Economics cannot usually be tested in a
  laboratory.
• Therefore economists must analyze existing data
  to come to conclusions about their topic

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Graphs a two dimensional representation of the
relationship of two given sets of data.
These sets of data are usually known as
variables. A variable is a quantity that can
change
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• Normative Statements
• Statements about how things ought to be are
  called normative statements. Thus, normative
  statements involve value judgement which cannot
  be refuted through reasoning or an appeal to
  facts.

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• Examples
• You should be good to your parents.
• You should respect your Economics teacher, Mr So.
• Progressive tax system is good because it can
  help the poor.
• How can we know whether the above statements are
  right or wrong?

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• Examples
• I was born in Beijing.
• Helen is studying economics in the library.
• My economics class has been changed to Tuesday.
• How can we know whether the above statements are
  right or wrong?

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• Testable
• (If you are kind to you parents, you will go to
  heaven after you die.)
• Refutable
• A scientific theory must be potentially refutable.

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• Positive Economics
• Positive economics only describes and relate
  observable facts without saying whether they are
  good or bad. In other words, it only deals with
  positive statements.

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• Examples
• If the price of a good increases, the quantity
  demanded will increase, other things being
  constant.
• If money supply increases, inflation rate will
  increase.
• If the supply of a good decreases, the price of
  the good will increase, other things being
  constant.

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• If I were the Manager, I would earn more profit
  for the company than Mr Lee.
• If I were the Chief Executive of Hong Kong, I
  could do better than Mr Tung.

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Hypothetical Situation Every time the
temperature in Florida goes above 95 for an
entite week, the price of grapefruits per pound
increases
What sort of research would you need to do to
prove this statement is TRUE ? What information
would you need to have?
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• In your notebook, propose an economic topic that
  could be examined with the scientific method.
• Using the Scientific Method Chart that you have
  copied, create a hypothetical step by step
  examination of the issue you have proposed.

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The Scientific Method
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• A theory consists of
• 1. variables (dependent and independent)
• 2. assumption(s)
• 3. hypotheses
• 4. prediction(s)

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Quiz

• What is the difference between positive
  statements and normative statements?
• What are the uses of scientific theories?
• What are the 4 basic elements of a scientific
  theory?

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Economic Theory

• Example Demand Theory
• If the price of a good increases, the quantity
  demanded of it will decrease, other things being
  constant.

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Characteristics of Scientific Theories

• What are the uses of theories?
• What are the differences between scientific
  theories and superstition?
• Is it possible to prove that a theory is always
  right?