Economics » Choice in a World of Scarcity » Confronting Objections to the Economic Approach

Key Concepts and Summary

Key Concepts and Summary

The economic way of thinking provides a useful approach to understanding human behavior. Economists make the careful distinction between positive statements, which describe the world as it is, and normative statements, which describe how the world should be. Even when economics analyzes the gains and losses from various events or policies, and thus draws normative conclusions about how the world should be, the analysis of economics is rooted in a positive analysis of how people, firms, and governments actually behave, not how they should behave.


invisible hand

idea that self-interested behavior by individuals can lead to positive social outcomes

normative statement

statement which describes how the world should be

positive statement

statement which describes the world as it is

Review Questions

What is the difference between a positive and a normative statement?

Is the economic model of decision-making intended as a literal description of how individuals, firms, and the governments actually make decisions?

What are four responses to the claim that people should not behave in the way described in this tutorial?

Critical Thinking Questions

What assumptions about the economy must be true for the invisible hand to work? To what extent are those assumptions valid in the real world?

Do economists have any particular expertise at making normative arguments? In other words, they have expertise at making positive statements (i.e., what will happen) about some economic policy, for example, but do they have special expertise to judge whether or not the policy should be undertaken?

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