Which of the following best describes the difference between positive and normative analysis in economics?

• A. Positive analysis is only used in microeconomics, while normative analysis is used in macroeconomics.
• B. Positive analysis is based on opinions, while normative analysis is based on facts.
• C. Positive analysis focuses on social values, whereas normative analysis focuses on market efficiency.
• D. Positive analysis deals with objective statements about what is, while normative analysis involves subjective judgments about what ought to be.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand that positive analysis in economics deals with objective, fact-based statements that can be tested or validated. It answers questions about what is or what will happen under certain conditions.
2. Step 2: Recognize that normative analysis involves subjective judgments and opinions about what ought to be. It incorporates values and ethical considerations, focusing on what should happen based on societal goals or preferences.
3. Step 3: Differentiate between the two by noting that positive analysis is descriptive and fact-driven, while normative analysis is prescriptive and value-driven.
4. Step 4: Evaluate the given options by checking if they correctly reflect this distinction: positive analysis is not limited to microeconomics, nor is it opinion-based; normative analysis is not solely about market efficiency but about value judgments.
5. Step 5: Conclude that the best description is the one stating that positive analysis deals with objective statements about what is, while normative analysis involves subjective judgments about what ought to be.