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In this description regarding positive theory and normative theory, from what I understand, positive theory is based on fact and cannot be approved or disapproved (e.g., explain how the economy actually operates), and "normative theory" is about the goal at which economies should aim.

From this document, they said:

For example, in the model of the perfectly competitive market, a positive theory played a key role in discussions of how antitrust law could achieve the normative goals of welfare economics. More generally, positive theories are said to show us the means to the public policy ends that normative theorists advance.

I have some questions as below:

1> Why does the author mention "perfectly competition market" in the first sentence? Whether the first sentence says that we need to based on what is really happening to plan for the strategy to achieve the goal?

2> Is the first sentence is explained as above, I do not understand what does the second sentence mean, it seems not link to the first sentence.

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Why “positive theory” is important in discussions of how antitrust law achieve “normative goal”?

Positive theory is important in any economic discussion. Positive economics is economics of what is, facts, data, theoretical relationship derived by logic from some axioms presumed to be true etc. Positive economics statements are statements like "unemployment rate in the US in October 2020 was 6.9%", or "in perfectly competitive market Price = Marginal Cost".

On the other hand normative questions are ought statements of what should happen based on some moral ideals or ideology. For example, "under Rawlsian principle of social justice poorest member of society should get welfare weight of 1 in social welfare function and all other people welfare weight of zero" is normative statement. That statement is not based on facts or empirics etc it is based on Rawls moral philosophy. Or for example, "government should try to maximize consumer's welfare by abolishing monopolies".

The reason why positive theory is important, is that the normative statement "government should try to maximize consumer's welfare by abolishing monopolies" requires us to first empirically, factually or logically (i.e. from perspective of positive economics) to validate the claim that dismantling monopolies will actually improve consumer welfare. Unless you involve positive economics how can you know it won't hurt the consumers?

1> Why does the author mention "perfectly competition market" in the first sentence? Whether the first sentence says that we need to based on what is really happening to plan for the strategy to achieve the goal?

Because author clearly argues that theory of perfect competition was important positive theory in area of antitrust, he would have not have written it if the author would not believe that.

2> Is the first sentence is explained as above, I do not understand what does the second sentence mean, it seems not link to the first sentence.

The sentence is linked, it says that positive theories are important in designing policy because they tell us which tools/policies/means we can use to pursue the (normative) ends we desire based on our moral values.

For example, whether state should force people to use medicine is normative question. But whether the medicine actually works is positive question. That sentence just says that it is important to get facts straight before starting to work on normative questions. Obviously, if the medicine is some bad snake oil and kills 90% of people taking, then that would change people's mind about the normative question of state mandating it. If on other hand the medicine has zero side effects and is life saving that again will affect people's decisions about whether normatively it would be good idea to force people to take the medicine.

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    $\begingroup$ @NoviceMindset 1. yes I meant the poorest, also it is just an example of normative statement don't get hang up on it. 2. It is up to you how will you do it. You can in principle start from normative theory, but in many moral philosophies outcomes matter. Whether cutting a person is moral or immoral would for most people depend at least somewhat on the outcome of that cutting. If that cutting removes tumor most people would say thats moral, if it inflicts pain and kills person then most people would say that is immoral. Even in deontological (rules based ethics as opposed to outcome based one) $\endgroup$
    – 1muflon1
    Aug 19 at 7:59
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    $\begingroup$ e.g. even under Kantian categorical imperative (deontological ethics) things can only be moral if all people can act that way toward each other, so actively trying to murder someone would not be ethical as if everyone would kill everyone there would be nobody left. So even if in the end in deontological ethics only rules matter one would still often set up the rules in taking into account what things happen. IRL sometimes normative theories are developed before positive ones and sometimes other way around. Nowadays in policy economics there is usually some set of moral theories that $\endgroup$
    – 1muflon1
    Aug 19 at 8:05
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    $\begingroup$ can be taken off the shelf, in policy economics people typically use Rawlsian ethics, Utilitarianism or (classical) liberalism ethics and variations on the themes (e.g. charitable classical liberalism/conservativism which is Rawlsian ethics combined with giving other people than the poorest some high welfare weight like 0.9 just not also 1) etc. Nowadays most policy research just tries to find positive theories/results to figure out how to achieve desired outcomes under those philosophies, new ones are rarely brought to the policy economics since when it comes to public policy arguably most $\endgroup$
    – 1muflon1
    Aug 19 at 8:09
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    $\begingroup$ fall into one of those categories. 3. I actually wasn't talking about vaccines just about some general unspecified medication. 4. Well in principle order does not matter. You can develop a normative theory like utilitarianism without having any positive knowledge about the world, but you cannot make any policy claims like that "free trade improves utility of both parties" without positive theory $\endgroup$
    – 1muflon1
    Aug 19 at 8:14
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    $\begingroup$ @NoviceMindset no you absolutely cannot say that normative theory is a hypothesis. Efficient market hypothesis is positive economics, hypothesis that there are cycles in world inequality is fully positive hypothesis. Hypothesis is untested theory. Hypotheses actually generally only exist in positive eocnomics since you cannot test normative economics. There is no way how you can test statement: "I am anarcho capitalist so I I believe government should set 0 taxes", no amount of testing will ever disprove that statement $\endgroup$
    – 1muflon1
    Aug 19 at 16:07
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Definition of Positive Theory

A positive theory is a theory that attempts to explain how the world works in a value-free way.

Definition of Normative Theory

Normative theories express what ought to be.

In the positive theory of the perfectly competitive market no firm has the descriptive or positive attributes of the monopoly firm.

In the positive theory of the monopoly firm there is at least one firm with the attributes of a dominant firm. These attributes do not manifest among firms in the theory of perfectly competitive market.

There are two positive theories which cannot both exist in the factual world at the same time. If one imposes no value judgments then one would be indifferent between these two factual events.

Antitrust law is a normative theory in which there is thought to be a benefit to society by making actual firms in actual markets have more competitive attributes and less monopolistic attributes based on the two positive theories.

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  • $\begingroup$ Do you mean from your two positive theories is that : in perfectly competitive market, no firms dominate other, and vice versa in positive theory in monopoly firms? $\endgroup$
    – Louise
    Aug 19 at 0:20
  • $\begingroup$ "If one imposes no value judgments then one would be indifferent between these two factual events." what does "one" stand for here then? and I did not get your idea here, could you please help me to explain it further? $\endgroup$
    – Louise
    Aug 19 at 0:21
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    $\begingroup$ Value judgments are attributes of an individual human being. So "one" in this context means one person or human being who either makes a value judgment or does not make a value judgment. If no value judgment arises in your mind then you are said to be indifferent between two alternatives or options. In the context of your question the two alternatives are perfectly competitive markets (an ideal or perfect model) and markets where competition is imperfect (where at least one firm has monopolistic attributes). In a market without dominant firms there are many firms that compete for low profits. $\endgroup$ Aug 19 at 0:36

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