Positive and Normative Economics

Positive and normative are two branches of modern economics. While positive economics deals with the various economic phenomena, normative economics focuses on what economics should be and the value of its fairness.

In simpler words, positive economics is regarded as the ‘what’ branch, whereas normative economics is the ‘should be’ or ‘ought to be’ section of economics. However, before moving forward to the difference between positive and normative economics, you must know about them in detail.

What Is Positive Economics?

Positive economics is the stream of economics that has an objective approach, relied on facts. It concentrates on the description, quantification, and clarification on economic developments, prospects and allied matters. This subdivision of economics relies on objective data analysis and relevant facts and figures. Therefore, it tries to establish a cause and effect relationship or behavioural relationship that can help determine as well as test the advancement of economic theories.

Here, the study of economics is more objective and focuses more on facts. Moreover, the statements are precise, descriptive and measurable. Such reports can be quantified with respect to noticeable evidence and historical references.

A positive economics example is a statement, “Government-funded healthcare surges public expenditures.” This statement is based on facts and has a considerable value judgement involved in it. Therefore, its credibility can be proven or dis-proven via a study of the government’s involvement in healthcare.

What Is Normative Economics?

Normative economics deals with prospective or theoretical situations. This division of economics has a more subjective approach. It focuses on the ideological, perspective-based, opinion-oriented statements towards economic activities. The aim here is to summarise the desirability quotient among individuals and quoting factors like ‘what can happen’ or ‘what ought to be’. 

Normative economics statements are subjective and rely heavily on values originating from an individual opinion. These statements are often very rigid and perceptive. Therefore, they are considered political or authoritarian. 

A normative economics example is, “The government should make available fundamental healthcare to every citizen”. You can understand that this statement is based on personal perspective and satisfies the need for ‘should be’ or ‘ought to be’.

5 Examples of Positive and Normative Economics

Here are five positive and normative economics examples each for better understanding-

Positive Economics

  • Monopolies have proved to be inefficient

  • The desired rate of return on gambling stocks are higher compared to others

  • The relationship between wealth and demand is inverse in the case of inferior goods

  • House prices reduce once the interest rate on loans get higher

  • Car scrappage schemes can result in a fall in the prices of second hand cars

Normative Economics

  • The government should implement strict wealth tax laws to decrease the uneven distribution of wealth

  • No individuals should be entitled to inheritances as it belongs to society

  • Import duties should be increased on goods coming from nations with humble human rights record

  • Investors ought to be more socially responsible and stop investing in vice stocks

  • Developing countries should only accept democracy when their entire population is educated and liberated

Difference Between Positive and Normative Economics

  1. Meaning

Positive economics means more focus on data, facts and figures rather than personal perspectives. The statements here are to the point and supported by relevant information.

On the other hand, normative economics focuses more on personal perspectives and opinion rather than facts and figures. Here the statements are based on an individual’s point of view, and ample data is always available to support such claims. 

  1. Perspective

The perspective of these two concepts is a significant point of difference between them. Positive economics is objective, whereas normative economics is subjective. The focus of positive economics is on presenting relevant and more focused statements backed by actual data. 

Contrarily, normative economics focuses on presenting statements that may or may not be possible in future. Moreover, in some cases, such statements do not have any credible data to back it up.

  1. Function

Their functions can distinguish between positive and normative economics. Positive economics describes the cause and outcome of relationship among variables. On the other hand, normative economics provides value judgement.

  1. Area of Study

Positive economics is the study of ‘what is’; whereas normative economics describes ‘what should be’. One branch relies on a factual approach supported by data. Contrarily, normative economics relies more on personal opinions rather than actual data.

  1. Testing

Every statement of positive economics can be tested scientifically and either proven or disregarded. However, normative economics statements cannot be tested scientifically. It entirely depends on the belief of an individual.

  1. Economical Clarification

Positive economics provides a more scientific and calculated clarification on an economic issue. However, normative economics also provides such solutions but ones that are based on personal values.

Importance of Positive and Normative Economics

Even though normative economics is subjective, it acts as the platform of out-of-the-box thinking. Such concepts can provide the foundation for ideas that have the power to reform an economy. However, decisions cannot be made based on them; positive economics is needed to provide the objective approach. It focuses on facts and analyses effects of such decisions in the society and then provides a statement that comprises necessary information to make a decision.

A clear understanding of the difference between positive and normative economics is vital for commerce students. Apart from this, to learn more about other chapters of economics, students can visit the official website of Vedantu.

FAQ (Frequently Asked Questions)

1. What is Positive Economics?

Ans. Positive economics is a branch of economics that has a more objective approach and presents more data and fact-based statements.

2. What is Normative Economics?

Ans. Normative economics is the division of economics that has a more subjective approach and presents statements based on personal opinions.

3. Give an Example of Positive and Normative Economics.

Ans. An example of positive economics is, “an increase in tax rates ultimately results in a decrease in total tax revenue”. On the other hand, an example of normative economics is, “unemployment harms an economy more than inflation”.