Economics is sometimes divided into two parts: positive
economics and normative economics. The former deals with how the
economic problem is solved, while the latter deals with how the
economic problem should be solved. The effects of price or rent
control on the distribution of income are problems of positive
economics. The desirability of these effects on income distribution
is a problem of normative economics.
Within economics, the major division is between monetary theory
and price theory. Monetary theory deals with the level of prices in
general, with cyclical and other fluctuations in total output,
total employment, and the like. Price theory deals with the
allocation of resources among different uses, the price of one item
relative to another.
Prices do three kinds of things. They transmit information, they
provide an incentive to users of resources to be guided by this
information, and they provide an incentive to owners of resources
to follow this information. Milton Friedman's classic book provides
the theoretical underpinning for and understanding of prices.
Economics is not concerned solely with economic problems. It is
a social science, and is therefore concerned primarily with those
economic problems whose solutions involve the cooperation and
interaction of different individuals. It is concerned with problems
involving a single individual only insofar as the individual's
behavior has implications for or effects upon other individuals.
Price Theory is concerned not with economic problems in the
abstract, but with how a particular society solves its economic
problems.
General
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