Three examples of division of labor

• Sports different positions (attack, defense)

• Academia different subjects and professors

• Medicine different diseases and specialists

• Electronics, software development, internet… can you think of one person doing it all?

• More technology comes w/ more specialization

Explain Friedman’s quotation

• You pay the pencil with money

• You get the money by working just a few minutes

• Stores split this money to pay suppliers and other related business

• These suppliers and other business also use their money to get other services (yours perhaps!)

• Markets economies are like barter economies: money is just like any other commodity, except that all exchanges have to be carried with money

Impersonal operation of prices

• Prices transmit information throughout the economy without any need of additional communication

• Prices “traffic light system”

• Friedman is a staunch supporter of free markets and liberalism (classical)

• He opposes socialism/communism, but also Keynesianism

• That is, all kinds of interventionism (?) / Austrians

Explain: the best lawyer…

• A lawyer can also work as a secretary, but he or she will earn more if focusing on what he/she does best (even if he/she is still better than most secretaries)

• Society benefits too (e.g. doctors and nurses)

• The underlying economic concept is comparative advantage (e.g. young and old castaways)

• Division of labor and capitalism

• Efficiency / development / improved quality of life

Positive and normative economics• In general, positive sciences are those involving

measuring, calculations, etc.

• Find relations among these quantities

• Normative sciences are applied to discovering what is just, good, and better

• Only positive sciences are ‘true sciences’. No scientific method in normative sciences

• Scientific method / Milton Friedman

Example

• You are visiting Paris and decide to go to a museum.

• You will have to answer 3 questions:1. Where are we now?2. What museum to visit?3. How to get there?

4. Questions 1. and 3. are positive, but 2. is clearly normative

How to answer a normative question - 1It can be made positive:• Why do we want to go to the museum?

– We feel conformists: Let’s go to the Louvre– We don’t want to pay for commuting: Let’s go to

the nearest one– We want to get a glance at impressionist

painters: Let’s go to d’Orsay museum– We want to meet people: Let’s go to the most

fashionable these days

• The problem is not yet solved; we still have to decide which is more important

• These questions can be easier (or not) to answer than the original

• Economics: make positive some complex questions

• Among other alternatives, this matter can be turned to a superior authority (moral code, religious authorities, parents, etc.)

• In the end, almost every real-life problem has both a positive and a normative component

How to answer a normative question - 2

Conclusions

• Positive economics: determines what it is and what it might be

• Normative economics: determines which one of the alternatives to choose

• Positive economics helps in dissecting a normative question into more simpler ones

• Normative questions only have answer in the context of a certain code of values (do values/rights evolve?)