Distinguish between Normative Economics and Positive Economics, with suitable examples.

OR

Why do central problems arise? Discuss briefly.

Positive economics deals with objective or scientific explanation of the economy. Positive economics is the study of what is, what was, and what will be. It is concerned with the study of how economic problems are solved. Positive economics is free from the value of judgments. Positive economics deals with cause and effect relationship.

Example

If the government imposes the tax on a particular good, the price of the good rises.

Normative economics is the study of what ought to be or how the economic problem is faced in the economy should be solved. It is concerned with the economic policies and goals. It is based on personal value judgments.

Example

The equitable distribution of income and wealth in the economy should be more fair and unbiased.

OR

Production, consumption, distribution and exchange are the basic economic activities. Central problems are concerned with the use of material resources to satisfy human wants. The main reasons for the occurrence of central economic problems are:

• Unlimited human wants

• Limited availability of resources

• Alternative uses of resources

This results in a situation of how to use scarce resources to attain maximum satisfaction. These problems are generally called the ‘central economic problems'. It is faced equally by every economy- whether developed or developing.