Positive Versus Normative Analysis in Economics

Question: Discuss about the Positive Versus Normative Analysis in Economics. Answer: Introduction: Primarily, the United Arab Emirates economy is an open market economy made up of various sectors. Essentially, it is made up of the producing, households, the government, financial sector, and rest the world sectors. These sectors operate intermittently and in association with each other. Notably, the countrys circular model comprises of the major exchanges and flow of money, services, and goods that occur between the economic agents (Mankiv, 2011). The actions of the various participants in the market economy generate national income, expenditure, and output, which then flow from one component to the other. Therefore, the circular flow model of the UAE involves the interactions between individuals, firms, the government and the rest of the world. The UAE has various households who act as consumers of services and goods produced within and outside the country. Primarily, households in the UAE supply firms with factors of production such as human capital, land, enterprise and real capital. Consequently, they receive rewards and income for the factors of production (Beggs, 2017). For instance, landowners in the country supply their land to firms and receive rent as compensation. In the same way, entrepreneurs provide their enterprise and in return they receive profits. On the other hand, the countrys labor force offer their human capital in various industries and firms and are paid in the form of wages and salaries. Lastly, capitalists within the state provide capital and in exchange receive interest as the factor payment (Beggs, 2017). Notably, the households may choose to consume all their income or save some instead of spending it all. The circular flow of income model for the UAEe Predominantly, firms in the country play the role of producing services and goods for the households and businesses within and outside the UAE. As such, local companies produce goods and services meant for domestic and export consumption. Often, they utilize the factors of production provided by the households to produce these commodities (Khan, n.d.). After they produce the commodities, they sell them to households who then pay for them with the income they earned from selling their factors of production. This way, the firms earn income. With the income earned, companies may invest in capital assets. Thus, they may purchase capital goods from other businesses. Mainly, the countrys public sector is controlled and managed by the government. Typically, the government earns its revenues through taxing households and firms within the state (Bogdan, 2010). The payment of taxes to the government represents a leakage from the economys flow of income. Nonetheless, it often injects money back into the circular flow by spending on public goods and services (Bogdan, 2010). Today, the UAE government spends on healthcare services, defense, and security among others. It also supports the poor and those that are unable to get employment within the prevailing market conditions. Predominantly, the countrys financial sector comprises of banks and non-bank institutions. Typically, these organizations act as intermediaries between economic agents. Often, they receive money in terms of savings. They also lend money to households and firms. Additionally, they engage in investment activities within the economy. Whereas savings is a leakage, investments is an injection of money into the countrys circular flow of income. As a whole, the UAE economy participates in international trade. For this reason, it pays for goods and services that are imported and earns income from commodities that are exported from the nation. Foreign consumers buy domestic products, thereby injecting income into the circular flow. Positive and Normative Statements Typically, in economic analysis, economic agents make various statements about the prevailing economic conditions. Characteristically, these statements may be classified either as positive or normative statements. It is imperative to note that positive statements are always based on what is happening in the economy and can be proven as true or false depending on the available facts (Beggs, 2015). More specifically, these statements use scientific principles to arrive at objective and testable conclusions. On the other hand, normative statements are subjective and opinion based (Caplin Schotte, 2008). For this reason, they cannot be proved or disapproved. Although they use factual evidence as support, they are often not factual. Instead, they incorporate the underlying morals and opinions of the individual making the statement. References Caplin, A. Schotte, A. (2008). The Foundations of Positive and Normative Economics: A Handbook. Oxford. Beggs, J. (2014). Positive versus Normative Analysis in Economics. ThoughtCo.com. Retrieved from https://www.thoughtco.com/positive-versus-normative-analysis-1147005. Beggs, J. (2017). The Circular-Flow Model of the Economy. ThoughtCo.com. Retrieved from https://www.thoughtco.com/the-circular-flow-model-of-the-economy-1147015. Blackhouse, R. Yann, G. (2010). Circular flow diagrams. In Famous Figures and Diagrams in Economics (222-229) Bogdan, D. (2010). Introducing the Circular Flow Diagram to Business Students. Journal of Education for Business, 85, no. 5: 276. Khan, S. Circular flow of income and expenditures. Khan Academy. Retrieved from https://www.khanacademy.org/economics-finance-domain/macroeconomics/gdp-topic/circular-econ-gdp-tutorial/v/circular-flow-of-income-and-expenditures. Mankiv, G. (2011). Principles of Economics (6th Ed.). Europe: Thomson.