Positive and Normative Economics

It's not simply numbers and graphs that make up economics; it's also the study of decisions, values, and policy discussions. When economists look at a situation, they often play two roles: that of an observer and that of an advisor. Positive Economics and Normative Economics are two different areas of economic analysis that embody these two responsibilities. One talks about what is, and the other talks about what should be. Students, lawmakers, and anybody else seeking to make sense of economic conversations and public debates need to know the difference.

What does "Positive Economics" mean?

Positive economics is the study of objective analysis. It talks about and explains economic events without making any judgments. Positive economics aims to find truths and connections that can be tested using data. You can confirm or disprove statements in this group by looking at them, using real-world evidence, or using economic models.

• "An increase in income tax will reduce disposable income" is an example of a positive statement.
• "A rise in the price of petrol will decrease its demand."
• "India's GDP went up by 7.8% in the last quarter."

These claims are true, give information, and can be tested. They assist economists figure out how the economy works, spot patterns, and make predictions based on data from the past and present.

What does Normative Economics Mean?

On the other hand, normative economics is founded on values. It includes more than just facts and data; it also includes views, beliefs, and moral judgments. It helps answer issues like "What should be done?" and is commonly used to make policies and plans for society.

• "The government should spend more on education" is an example of a normative statement.
• "To make things more fair, taxes on the rich should be higher."
• "All citizens should be able to get free healthcare."

It is not possible to test these statements in the same manner as positive ones. They are based on personal or cultural ideals and often differ from person to person or culture to culture.

Key Difference Between Positive & Normative Economics 

Economists look at the world through two main lenses: positive economics and normative economics. Positive economics helps us comprehend and forecast what will happen in the actual world when it comes to money, while normative economics makes us think about values, morals, and the aims of society. In the actual world, especially when making decisions on policy, both methods are employed together. Students and professionals can think more critically, debate more clearly, and add more to discussions about economic concerns if they know the difference

The Key differnece for positive and normative economics is tabulated below: 

 

Parameter	Positive Economics	Normative Economics
Nature	Objective	Subjective
Focus	Facts and cause effect relationships	Opinions and value judgements
Verifiability	Testable and provable	Not directly testable
Purpose	Explain and predict economic behaviour	Recommend economic policies
Example	“Higher interest rates reduce borrowings”	“Interest rates should be lowered to help the poor”

 

Did you know? Milton Friedman, a well-known economist, famously said that economics should be about what is, not what should be. He thought that only positive economics could be real. Frequently

Explore More 

• Demand Forecast Methodology 
• Global Financial Crisis 
• Fixed Costs 
• Basel Norms

What can be more fun than getting all the information you need at one place? Read the Commerce Concepts and keep learning! 

Frequently Asked Questions (FAQs)

Can a remark be both good and bad?

Yes, certain statements can have both parts. For instance, "The government should stay away from raising the minimum wage because it will raise the cost of labor."

 The first portion is good, while the second part is normal.

Why is it vital to tell the two apart?

Knowing the difference helps you make clearer arguments, have good policy debates, and do fair analysis. It also helps pupils tell the difference between facts and views, which is very important in writing for school and in public.

Do economists agree more on assertions that are positive or negative?

Because they are founded on facts and statistics, economists are more inclined to agree on positive claims. Normative statements often cause people to disagree since they are based on personal or political beliefs.