Three examples of division of labor

1. 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

2. 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

3. 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

4. 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

5. 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

6. Example • You are visiting Paris and decide to go to a museum. • You will have to answer 3 questions: • Where are we now? • What museum to visit? • How to get there? • Questions 1. and 3. are positive, but 2. is clearly normative

7. How to answer a normative question - 1 It 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

8. How to answer a normative question - 2 • 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

9. 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?)