Economics is sometimes divided into two parts: positive economics and
normative economics. The former deals with how the economic problem is
solved, while the latter deals with how the economic problem should be
solved. The effects of price or rent control on the distribution of
income are problems of positive economics. The desirability of these
effects on income distribution is a problem of normative economics.
Within economics, the major division is between monetary theory and
price theory. Monetary theory deals with the level of prices in general,
with cyclical and other fluctuations in total output, total employment,
and the like. Price theory deals with the allocation of resources among
different uses, the price of one item relative to another. Prices do
three kinds of things. They transmit information, they provide an
incentive to users of resources to be guided by this information, and
they provide an incentive to owners of resources to follow this
information. Milton Friedman's classic book provides the theoretical
underpinning for and understanding of prices. Economics is not concerned
solely with economic problems. It is a social science, and is therefore
concerned primarily with those economic problems whose solutions involve
the cooperation and interaction of different individuals. It is
concerned with problems involving a single individual only insofar as
the individual's behavior has implications for or effects upon other
individuals. "Price Theory" is concerned not with economic problems in
the abstract, but with how a particular society solves its economic
problems.
