An Overview of Normative vs. Positive Economics
Normative economics concentrates on subjective claims about economic justice or the best way to structure the economy, whereas positive economics utilizes objective, quantifiable language to explain and characterize economic processes. These are two subfields in contemporary economics.
In other words, positive economics is frequently referred to as the “what is” school of economics, whereas normative economics asks what “ought to be.”
Important Takeaways
- Numerous economic events are described and explained in verifiable terms by positive economics.
- Economic justice is a key component of normative economics, which focuses on what the economy “should be” or “ought to be.”
- Normative economics is predicated on value judgments, whereas positive economics is grounded in facts.
- The majority of public policy is grounded in a mix of normative and positive economics.
Good Economics
A branch of economics known as “positive economics” is concerned with characterizing, measuring, and explaining economic trends, expectations, and related phenomena. It is based on pertinent facts, related figures, and objective data analysis. It looks for any behavioral correlations or cause-and-effect links that can be useful in determining and evaluating how economic theories have evolved.
Positive economics is fact-based and objective. Its claims are explicit, quantifiable, and detailed. These claims can be evaluated in light of historical examples or concrete proof. Subjective approbation or disapproval does not exist in positive economics.
An illustration of a favorable economic statement is as follows: “Government-provided healthcare increases public expenditures.” There is no value judgment associated with this statement; it is fact-based. Examining healthcare spending in areas where governments offer healthcare can confirm (or refute) its validity.
Normative Economics
Value-based decisions intended to enhance economic growth, investment initiatives, and wealth distribution are the main emphasis of normative economics. Its objective is to ask what should or ought to be in order to characterize the desirability (or lack thereof) of particular economic trends, conditions, and initiatives.
Subjective and value-based, normative economics derives from individual viewpoints or opinions that are considered during the decision-making process. The claims made by this school of economics are strict and directive. This area of economics is sometimes known as “what should be” or “what ought to be” economics since they frequently seem political.
A normative economic statement would be something like, “The government should provide basic healthcare to all citizens.” This statement is value-based, grounded in personal perspective, and meets the criteria of what “should” be, as you can infer.
Particular Points to Remember
Normative economic statements are frequently used in talks on public issues, according to common observations. Because neither side can definitively demonstrate their correctness, there is a greater degree of disagreement that endures in these kinds of talks.
Normative assertions serve as the essential conduits for unconventional thinking, despite their generic and subjective nature. These viewpoints can serve as the basis for any essential adjustments that could fundamentally alter a given undertaking.
On important economic fronts, however, normative economics cannot serve as the exclusive foundation for decision-making. The objective perspective that emphasizes facts and cause-and-effect is replaced by positive economics. When combined with positive economics, normative economics can help develop, produce, and implement novel theories and concepts for various economic objectives and viewpoints.
If policies are based on a balanced combination of facts (positive economics) and opinions (normative economics), a thorough comprehension of the distinction between the two fields may result in improved policymaking. However, normative economics serves as the foundation for many policy on topics ranging from welfare to international trade.
The Bottom Line
There are two distinct subfields and schools of thought within the discipline of economics: normative and positive. Positive economics uses quantifiable, objective language to explain economic processes. Normative economics uses subjective language to describe phenomena, frequently involving judgments based on values. Both branches are essential to establishing public policy and work in tandem with one another.
FAQs :
1.A Positive Theoretical Statement: What Is It?
Hypotheses that can be empirically tested are established by a positive assertion. A normative assertion, on the other hand, is predicated on subjective values or opinions.
2.What Constitutes a Normative Economics Example?
One may argue that any economic strategy that advances a social or policy objective is normative. A normative argument would be one that is founded on subjective values, such as the case for raising the minimum wage for the benefit of employees. Positive economics, on the other hand, would support the claim that raising the minimum wage would increase GDP.
3.Is Normative Economics Superior to Positive Economics?
Each type has a role, yet both have shortcomings when used alone. When developing the policies of a nation, region, industry, organization, or company, it is frequently necessary to combine normative and positive economic statements.
