6. Markets and Human Well-Being

The preceding chapter was almost entirely about positive economics: how markets work, and how the apparatus of supply and demand analysis can be used to explain economic outcomes or predict how future events may alter the fortunes of individuals and groups tied to the economic system. This is economics as plumbing or dentistry—no values to speak of, just technique. But the great interest most of us have in economic issues is not just technical. We care about meeting human needs, improving living standards and pursuing other goals like liberty, equality and sustainability. This means that we care deeply about the normative side of economics, what it can tell us about whether economic arrangements are good. So this chapter is an introduction to normative models in economics, the foundation for thinking analytically about the desirability of economic institutions and policies.