An economist first works out how the market and a central authority would each allocate a country’s resources. She then judges which of the two outcomes is better for society. Which kinds of economic analysis does she use in the two steps, in that order?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Positive analysis, then normative analysis
Working out how the market and a central authority would each allocate resources studies how the mechanisms function. That is positive analysis. Judging which outcome is better asks whether they are desirable. That is normative analysis.
Option (1) Positive analysis, then normative analysis — Correct. Describing comes first, judging comes second.
Option (2) Normative analysis, then positive analysis — Incorrect. This puts the two steps in the wrong order. The first step only describes the outcomes.
Option (3) Positive analysis in both steps — Incorrect. Judging which outcome is better is normative, so the second step is not positive.
Option (4) Normative analysis in both steps — Incorrect. Working out the outcomes is positive, so the first step is not normative.
NCERT (2026-27): “1.4 Positive and Normative Economics … In economics, we try to analyse the different mechanisms and figure out the outcomes which are likely to result under each of these mechanisms. We also try to evaluate the mechanisms by studying how desirable the outcomes resulting from them are.” “Often a distinction is made between positive economic analysis and normative economic analysis depending on whether we are trying to figure out how a particular mechanism functions or we are trying to evaluate it. In positive economic analysis, we study how the different mechanisms function, and in normative economics, we try to understand whether these mechanisms are desirable or not. …” |