Product: Price Theory

Economics can be divided into two parts: positive economics and normative economics. Positive economics focuses on how the economic problem is solved, while normative economics focuses on how the economic problem should be solved. The effects of price or rent control on income distribution fall under positive economics, while the desirability of these effects on income distribution falls under normative economics.

In economics, the main division lies between monetary theory and price theory. Monetary theory deals with general price levels, fluctuations in total output and employment, and other cyclical factors. On the other hand, price theory focuses on resource allocation and relative prices of goods.

Prices serve three main functions: they communicate information, provide incentives to resource users to make decisions based on this information, and incentivize resource owners to act in accordance with this information. Milton Friedman's influential book offers a theoretical framework for understanding prices.

Economics is not just about economic issues; it is a social science primarily concerned with economic problems that require collaboration and interaction among individuals. It only considers problems involving a single individual if that individual's actions impact others. Price Theory doesn't just focus on abstract economic problems, but on how a specific society addresses its economic challenges.

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