Positive vs. Normative Economics: What’s the Difference?

Positive and negative. normative economics A Comprehensive Overview

Positive economics and normative economy are two main areas of contemporary economics. Positive economics is a way to explain and describe the various economic phenomenon, while normative economics concentrates on the significance of fairness in economics or what the economics ought to be.

Simply put positive economics is”the “what is” branch of economics. The normative aspect of economics, on contrary, is as the economic branch that attempts to evaluate the merits of various economic plans and policies through asking questions about the question of what “should” or what “ought” to be.

KEY TAKEAWAYS

  • Positive economics describes and clarifies diverse economic phenomenon.
  • The focus of normative economics is on the importance of fairness and economics and what the economy “should be” or “ought to be.”
  • Although positive economics is based on reality and can’t be accepted or rejected while normative economics is based on judgments of value.
  • The majority of public policy is based upon an amalgamation of negative and normative aspects of economics.

Positive Economics

Positive economics is a branch of economics that is focused on the definition, quantification, and analysis of economic trends as well as expectations and related issues. It is based on objective data analysis, relevant data, and the associated figures. It seeks to establish causes-and-effect or behavioral relationships that can aid in determining and validate the validity in economic theory.

Positive economics is based on facts and objective in which the claims are clear and descriptive. They are also clearly quantifiable. These statements can be compared against concrete evidence or historical examples. There is no evidence of disapproval or approval in economics that are positive.

Below is an instance of an economic statement that is positive: “Government-provided healthcare increases public expenditures.” This is a factual statement and doesn’t have any judgment of value associated with it. Its credibility can be established (or proved) by analyzing the cost of healthcare when governments offer healthcare.

Positive economics was a popular concept promoted by economics professor Milton Friedman, who said that economics science should examine data objectively, without motive or bias. 2

Normative Economics

Normal economics is focused on based judgements that are based on value and aimed to improve economic development, investment plans and how wealth is distributed. Its purpose is to analyze the desirableness (or the lack of) of economic development such as programs, circumstances, and situations by asking what could occur or what should be the outcome.

The normative economy is a subjective, value-based field that is based on personal experiences or the opinions of those involved in taking decisions. The arguments of this kind of economics are definite and prescriptive. They can be considered to be political and that is the reason this branch of economics is known as “what should be” or “what ought to be” economics.

A good example of a normative economic statement would be “The government should provide basic healthcare to all citizens.” From the above statement, it’s valued, rooted in the individual’s perspective, and meets the requirements that defines”what “should” be.

A few of the world’s most well-known mainstream economists of all time are Amartya Sen, a Nobel prize winner who dedicated his life to research on the development economy.

Special Considerations

Discussions regarding public policies generally include normative economic statements. More disagreement can be found in these discussions due to the fact that neither side can be able to prove their claims with certainty.

While normative statements can be generalized and subjective they are most effective channels to promote thinking outside the box. These opinions could form the basis for any needed modifications that could provide the ability to transform a specific project.

However, it is not the sole factor in deciding on major economic issues. Positive economics is the objective view that is focused on facts and causes-and-effect. In conjunction with positive economics, normative economics could be beneficial in the development, generation and implementing ideas and theories to meet different perspectives and goals in economics.

An knowledge of the distinction between normative and positive economics can result in better policy making if policies are from a balance of data (positive economics) as well as opinions (normative economics). However, many policies covering issues between international trade and welfare policies are a minimum partly founded in normative economics.

What Is an Example of Normative Economics?

Any economic plan that supports any kind of policy or social agenda could be termed normative. For example, advocating for an increase in minimum wages to benefit workers is an example of a logical argument. This reasoning is grounded in subjective opinions. But, a claim that higher minimum wage would result in a greater GDP is considered to be positive economics.

What Is a Positive Theoretical Statement?

Positive statements are those that is able to establish hypotheses which can be tested empirically. A normative statement is made based on opinions or subjective values.

Is Positive Economics Better Than Normative Economics?

Both kinds have their places however, each contain flaws. Combining normative and positive economic statements is usually necessary to formulate the policies of a nation region, sector or institution.

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