Everyone is aware that economics is a large academic discipline. Along with that, it has become usual for economists to serve as business consultants. They also act as media analysts and advice-givers on important government policies. So, one must know when economists are delivering an evidence-based statement. Also, when they are providing their judgements about what policies and laws to enact.
This blog gives its readers a clear understanding about Positive vs Normative Economics. Additionally, there is an explanation of each of their concepts in detail. They both are vital branches to the comprehensive subject of modern Economics.
What do we understand by Positive vs Normative Economics?
It is a cent per cent true that economics involves both science and art. Furthermore, note that they are not limited to fact or fiction only but it is a combination of both. Before Positive vs Normative Economics, as the blog title says, know their concepts.
A positive statement by economists is quite descriptive and informative in nature. Positive economics, , use scientific principles to reach the desired conclusions. It puts focus on what already is – the facts, the verifiable. Under positive economics, one can check the statements as what are right/wrong ones.
But, several economists use prescriptive, value-based statements to refer to normative statements. Such statements usually use evidence as their pillar of support. But, they are not by themselves accurate. Instead, they include the opinions, morals of those individuals who make that statement. put, normative is the process of suggesting what action should take place. It also involves recommending a particular viewpoint on that topic of focus.
Importance of Positive vs Normative Economics
Some common observations state that debates on public policies involve normative economic statements. A higher degree of disagreements persists in such discussions. This is because neither party can prove their righteousness to the public authority.
A clear difference between positive and normative economics can lead to better policy-making. This is only when policies made have the base of a balanced mix of facts (positive) and opinions (normative).
Let us see the dynamic fight – Positive vs Normative Analysis
Now the blog jumps to the main part which is based on their differentiation. It proves useful when it comes to the formation of policies of a country or for businesses. Both these sections of economics are valuable. For that, one must be able to know what facts are. And how one can make use of the judgments to make and execute policies. This will in turn, help citizens of the country and the society. The following displays the great differences between – Positive vs Normative Analysis.
Positive economics is a sub branch of economics. It has its focus on description, quantification. It also highlights the justification of various economic and other phenomena associated with it. Positive economics relies on factual analysis, relevant data, and relatable figures. Even so, its need is there because a positive economics points out the thing as it is. So then, delivery of a judgment based on that fact takes place. It talks about the cause and effect relationship or even sometimes behavioural associations.
Positive economics is fact-oriented. One will be able to see that here the statements are descriptive. They are measurable and always up to the point. Moreover, measurement of these statements against physical or historical evidence is possible as well. There are no cases of approval-disapproval in the positive economics analytical section.
Here is an example of a positive economic statement. “Government-assisted healthcare increases general public expenditures.” This statement is factual. Besides, there is no value judgment involved in it. A person can confirm or not confirm its rationality. In addition, it is possible by examining healthcare expenses where governments provide healthcare treatments.
Normative economics deals with the opinion-oriented, prescriptive, valued judgments. In simple words, it means “what should be” statements. These statements aim toward economic development, investment ventures. Its primary goal is to sum up people’s increasing appeals to some economic events and programs. It is achievable by asking or quoting the question of what should happen or what ought to be.
Normative economics is very subjective and value-based. Its origin is from personal perspectives and/or feelings. Their involvement in the decision-making method is quite evident today. Normative economics statements often sound political or authoritarian. This is why this particular economic section is also called “what should be” or “what ought to be” economics. It talks about and passes opinions on the facts presented in positive economics.
We provide you with an example of a normative economic statement. “The government should provide basic healthcare to all the citizens of the country.” As one can conclude from the above statement, it is value-based. The sentence has its roots in personal perspective. It also manages to meet the need of the question, “what should be”.
Conclusion on Positive vs Normative Economics
Thus, a final analysis says that positive economics answers the “what is” question. While normative economics asks the question “what the economy should be” or “what it ought to be”. Positive statements rely on factual information. Furthermore, in normative economics, opinions and values are the basis of its statements.
These two types of economics have very practical applications. One can apply them in anything – from the field of business to politics, from sports to social changes. Policies planning to implement the same, etc. are also covered here.
Frequently Asked Questions (FAQ’s)
What is the meaning of positive economics and what is it based on?
According to economists, positive economics are factual statements about the world. These statements have their basis on facts, evidence and reality.
Why is normative economics needed and what is it based on?
Normative economics passes views on the facts presented in positive economics. It forms the main basis of other people’s judgments, views and thoughts.
Why are the concepts of positive and normative economics important in today’s world?
These two branches of economics are important in today’s fast-growing world. It is because it has the power to shape policies of various businesses, regions. Not to mention, the industrial sector, institution, or of any nation. Policymakers and planners view it as a very important concept.