Positive and Normative Economics Examples
Positive Economics is concerned with objective statements about what has occurred or may occur. It is limited to claims that can be supported by proof, such as How does higher unemployment impact inflation, or how will a fuel tax affect gasoline consumption? A positive approach is more realistic and scientific.
Normative Economics, on the other hand, recognizes that in reality, many economic decisions require subjective judgments; that is, they cannot be taken purely based on an objective assessment of the evidence but must rely on personal perspectives in interpreting facts – ethics and value judgments.
They can be debated, but they can never be resolved by science or an appeal to reality, for example, should taxes soak the wealthy in order to benefit the poor? Should defense spending increase by 3%, 5%, or 10% each year? They deal with what ought to be and are determined by political preference.
Positive Economics is basically about making predictions about economic phenomena. The predictive ability of positive economics is based on identifying trends in data from the past when certain causal forces were acting in isolation with each other. Normative economics is basically about making judgments on which policies and institutions ought to be adopted.
Difference Between Positive and Normative Economics
What’s the difference between Positive and Normative Economics?
Positive economic analysis is the study of the effect of a particular policy on an economy. Normative economics, on the other hand, deals with how a person or institution ought to act in order to achieve what they believe is morally right.
Here is the key difference between normative and positive economics
- Positive Economics is the “science of how” and “why” a particular rule or policy works, while normative economics is the “science of what,” studying what the right thing to do is in certain situations.
- Positive economics takes off from an economic point of view, and explains effects or how something affects an economy through supply and demand, production factors, prices, and income considerations.
- Normative economics takes off from a moral point of view and studies how someone should act in certain situations. They look at what an economy is supposed to provide – for example, the right amount of public goods and services – and how that relates to a society’s values and morality.
- Positive economics tells people what they should do, whereas normative economics tells them what they should want or need.
- Positive economics deals with cause and effect, while normative economics looks at what should be and what the consequences of an action might be.
- Positive Economics is based on facts, Normative Economics is based on judgment.
- The goal of normative economics is to help people make decisions in complex situations where they may not have enough information to understand the real effects of their actions.
- Because Normative Economics is based on judgment, it can cause biased judgments. This means that it can be used to support different ideas to explain the world around us which may not s actual fact.
- Positive economics looks at facts and figures to determine cause and effect relationships between variables, while normative economics uses moral principles to make judgments about right or wrong behavior
- Normative economics is concerned with how we can make society better, whereas positive economics focuses on describing and predicting economic phenomena
- Positive economists use deductive reasoning to derive testable hypotheses from a set of assumptions about human behavior, while normative economists use inductive reasoning to generate ideas for making society better
Positive and Normative Economics Examples
Positive economics takes an economic point of view and explains effects through supply and demand, production factors, prices, and income considerations. It is also concerned with the “how” of economies.
For example, it would look at how a particular policy affects prices in a market, or how much the production of apples goes up after you add more trees to an apple orchard.
Normative economics takes off from a moral point of view and studies how someone should act in certain situations. It studies the “what” of economies.
For example, it would look at what an economy is supposed to provide, such as public goods and services for all citizens.
Normative economics assumes that there are certain values or ideals that society should strive for and meet in order to be a good society. The main purpose of normative economics is to help people make decisions in complex situations where they may not have enough information to understand the real effects of their actions.
For instance, it gives people a way to decide how much money they should spend on health care.
Positive economics does not give people a way to decide how much money should be spent on health care. Instead, it helps them understand how the health care market works and helps them understand the consequences of certain actions (such as cutting spending on health).
Summary: Positive Economics vs Normative Economics
It is important to note that positive economics is based on facts and normative economics is based on judgment. Positive economics is concerned with the “how” of an economy while normative economics is concerned with the “what” of an economy. There are two main branches of economics: positive and normative. Positive economic analysis is the study of the effect of a particular policy on an economy. Normative economics, on the other hand, deals with how a person or institution ought to act in order to achieve what they believe is morally right.