Intro to Economic
Concepts
•Macro vs. Micro
•Positive vs Normative Analysis
•Why do economists often
disagree?
Microeconomics
• Micro looks at individual operations of
businesses and consumers
• Also deals with how businesses,
government and consumers interact
– Think: ECONOLAND
Macroeconomics
• Macro looks at how economies as a whole
function; a study of economy-wide
phenomena.
– Think: Inflation, unemployment, interest rates,
taxation, trade deficit, national productivity
rates, national savings rate, etc.
Classify the following:
 a family’s decision about how much income to save
– MICRO
 the effect of government regulations on auto
emissions
– MACRO
 the impact of higher savings on economic growth
– MACRO
 a firm’s decision about how many workers to hire.
– MICRO
 The relationship between the inflation rate and
changes in the quantity of money.
– MACRO
Economic Statements can be described as
either Positive or Normative
• Positive Economic Statements explain the
way things are.
• Factually based statements
• Can be proven true or false based on
objective evidence
– Example: Low interest rates lead to a decline
in savings by households
Normative Economic Statements
• Describe how the world ought to be.
• Normative analysis involves values and
judgment calls (Subjective Analysis).
– For example: Interest rates should be kept
high to encourage saving.
Positive or Normative?
• State governments should be allowed to
collect from tobacco companies the costs
of treating smoking related illnesses
among the poor.
• Normative
• Higher federal budget deficits will cause
interest rates to increase.
• Positive
Positive or Normative?
• Society ought to require welfare recipients
to look for jobs
– Normative
Economists tend to often disagree
• Positive economic analyses can be criticized for their
scientific validity, just as scientific analysis in other fields.
– Think: Global Warming!
Normative Analysis involves ideas about values, and
religion, including ideas about fairness and human
nature.
- These can be argued without end!
“Just once, I’d like to meet a one
armed economist.”
Harry Truman
Economics involves Tradeoffs!!
Ten Propositions about Which Most Economists
Agree
Copyright © 2004 South-Western
Okay, so here is a hot topic…
Positive or Normative?
• An increase in the minimum wage will
cause a decrease in employment among
the least skilled and experienced workers.
• The income gains from a higher minimum
wage are worth more than any slight
reduction in employment
If economists tend to look down
upon minimum wage…why do
politicians favor it?
Against
Wants to
index it
Both are for it
What should we do?
• Research!
• Minimum Wage research assignment and
essays due Monday, February 7.