Positive and Normative Economics

Economics is both a science and an art. But, which type of science, i.e. positive or normative, is the fundamental concern here? The term “positive economics” refers to a certain type of analysis that emphasises cause-and-effect relationships. Normative economics, on the other hand, seeks to examine real-world economic occurrences from a moral and ethical angle. It is used to determine whether or not economic occurrences are beneficial.

Positive economics is based on economic reality. Normative economics deals with assessments based on values. The majority of individuals believe that statements that are widely accepted are true, but in actuality, they are valued. Understanding the differences between positive and normative economics can help you comprehend how the economy works and how well policymakers make decisions.

Positive economics

Positive Economics is a field of economics that takes a fact-based, objective approach. It examines and discusses the correlation between variables that is unintentional. It describes how the country’s economy works to the general public. Positive economics is sometimes known as descriptive economics or pure economics.

It is positive economics when scientific approaches are applied to economic phenomena and scarcity-related issues. Positive economics statements take into account what is actually happening in the economy. It assists policymakers in determining if the suggested action will be able to achieve our goals or not. They accept or reject the statements in this manner.

Positive economics is objective and based on statistics, with descriptive, specific, and measurable statements. These claims can be compared against historical examples or concrete facts. In positive economics, there are no instances of approval-disapproval. Either it is there or simply not there.

Consider the following sentence as an example of a positive economic statement: “Healthcare given by the government boosts government expenditure.” This statement is based on facts and does not include any value judgments. Studying healthcare costs where governments provide healthcare can authenticate (or disprove) its validity.

Normative economics

Normative economics is the branch of economics that employs value judgments, opinions, and beliefs. This field of economics looks at values and comes up with assertions like “what should be the items.” It includes subjective assessments and focuses on hypothetical scenarios.

Normative Economics deals with how the economy should function. It’s also known as policy economics because it considers individual preferences and beliefs. As a result, the statements cannot be shown to be true or false.

Normative economics is subjective and based on values. It arises from the decision-making process’s individual viewpoints, opinions, or feelings. The nature of normative economics is prescriptive yet rigorous. This economic branch is often known as “what ought to be” or “what should be” economics since they frequently seem dictatorial or political.

“The government offering basic healthcare to all citizens” is an example of a normative economic statement. This statement is value-based, rooted in personal perspective, and meets the condition of what “should” be, as you can see.

Relation between positive and normative economics

Observations show that normative economic assertions are frequently used in talks about public policies. Because neither party can explicitly show their right, there is a larger degree of dispute in such conversations.

Despite the fact that normative assertions are generic and subjective in nature, they serve as vital conduits for unconventional thinking. Such viewpoints can serve as the basis for any necessary alterations that have the capacity to fundamentally revolutionise a project. However, normative economics cannot be used as the sole foundation for making important economic decisions. Positive economics stands in for the objective approach, which emphasises facts and cause-and-effect relationships. When used in conjunction with positive economics, normative economics can help build, generate, and implement new concepts and theories for various economic aims and views.

If policies are developed based on a balanced combination of facts (positive economics) and opinions (normative economics), a thorough knowledge of the difference between positive and normative economics may lead to better policy making (normative economics). Nonetheless, normative economics is used to inform a variety of policies spanning from international commerce to welfare.

Difference between positive and normative economics

1. Positive Economics is a science that is focused on facts and statistics. Normative economics is defined as a science that is built on values, judgement, and views.
2. Positive economics describes, but normative economics prescribes.
3. Positive economics describes how variables cause and impact each other. Normative economics makes judgments based on values.
4. Positive economics takes an objective approach, whereas normative economics takes a subjective one.
5. The difference between positive and normative economics is that positive economics explains “what is,” while normative economics explains “what should be.”
6. Positive economic assertions may be empirically tested, proven, or denied, whereas normative economic statements cannot.
7. Economic issues are clearly defined by positive economics. Normative economics, on the other hand, provides remedies for economic problems based on value judgments.

Conclusion

Policymakers and planners aren’t the only ones who care about them. They are equally vital for everyone trying to come up with a fact-based answer. If a school notices that its kids have been performing below average for the past several years, they can convene a meeting to discuss the situation, scribble down ideas, and determine the best course of action to help the children improve their grades. The combination of the fact and the solution in this simple circumstance may be clearly traced back to the notions of positive and normative economics.

These two types of economics are so useful that they may be used in almost any situation, from business to politics, sports to social reforms, policymaking to being wealthy.