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

In this article, we will explore more about the difference between positive and normative economics:

What is Positive Economics?

Positive economics is a branch of economics that focuses on the objective analysis of economic behavior and the development of scientific theories and models based on empirical evidence. It seeks to describe and explain economic phenomena as they are, rather than as they should be or could be.

Positive economics aims to describe the cause-and-effect relationships between different economic variables and to develop testable hypotheses that can be verified or falsified using empirical evidence. This involves the use of statistical and mathematical techniques to analyze economic data and test economic models and theories.
One of the key features of positive economics is its value neutrality. Positive economists seek to avoid making normative judgments about what economic outcomes are desirable or undesirable. Instead, they focus on describing and explaining economic behavior as it exists in the world.

Positive economics can be contrasted with normative economics, which is concerned with making value judgments about economic outcomes and the policies that should be implemented to achieve them. While positive economics seeks to describe and explain economic behavior, normative economics is concerned with prescribing what economic behavior should be.
Overall, positive economics is an important approach for understanding economic behavior and developing scientific theories and models that can help inform economic policy decisions.

What is Normative Economics?

Normative economics is a branch of economics that is concerned with making value judgments about economic outcomes and the policies that should be implemented to achieve them. Normative economics is concerned with what should be, rather than what is.
Normative economists seek to identify the economic goals and values that should guide economic decision-making and policy. They may make use of ethical or moral principles, political ideology, or other normative frameworks to evaluate economic outcomes and make recommendations for policy.

For example, a normative economist might argue that society should prioritize reducing income inequality and recommend policies such as progressive taxation, minimum wage laws, or social welfare programs as means to achieve this goal. Another normative economist might argue that society should prioritize economic growth and recommend policies such as deregulation or tax cuts as means to achieve this goal.

Normative economics is closely related to welfare economics, which is concerned with evaluating the overall welfare or well-being of society. Welfare economists seek to identify the policies that maximize social welfare or utility, and may use normative frameworks to make these judgments.

It is important to note that normative economics is often influenced by subjective values and beliefs, and that there is often significant disagreement among economists and policymakers about what economic goals and policies are desirable or appropriate. Therefore, normative economics is often subject to intense debate and controversy.

What Is an Example of Normative Economics?

An example of normative economics is the debate over the minimum wage. Economists can use positive economics to study the effects of a minimum wage increase on employment and wages, but the decision of whether or not to raise the minimum wage is ultimately a normative one.

A normative economist might evaluate the minimum wage increase based on ethical or political principles, such as the desire to reduce poverty or to promote economic growth. The economist might argue that raising the minimum wage will help to reduce poverty and increase the standard of living for low-wage workers, or that it will stimulate consumer spending and promote economic growth.

Alternatively, a normative economist might evaluate the minimum wage increase based on the costs and benefits to different groups in society, such as employers, workers, and consumers. The economist might argue that raising the minimum wage will lead to higher costs for employers, which could lead to reduced profits, higher prices, or lower employment. The economist might also argue that a higher minimum wage could lead to better working conditions and reduce the need for government welfare programs.
Ultimately, the decision of whether or not to raise the minimum wage depends on a variety of normative considerations, such as values, political ideology, and goals for economic policy. Normative economics can help to identify these considerations and evaluate the costs and benefits of different policy options.

What Is a Positive Theoretical Statement?

A positive theoretical statement, in economics, is a statement that describes or explains an economic phenomenon without making any value judgments or normative claims. Positive theoretical statements are objective and fact-based and can be tested using empirical evidence.

For example, a positive theoretical statement could be "an increase in the price of gasoline will lead to a decrease in the quantity demanded of gasoline." This statement is a positive theoretical statement because it describes an economic phenomenon (the relationship between price and quantity demanded) and does not make any value judgments or normative claims about whether the price of gasoline should be increased or decreased.

Positive theoretical statements are often used to develop economic models and theories that can help us better understand economic behavior and predict economic outcomes. By testing these models against empirical evidence, economists can refine their understanding of economic phenomena and develop more accurate predictions about the effects of economic policies or other changes in the economy.

It's important to distinguish positive theoretical statements from normative statements, which are based on subjective value judgments and are not testable using empirical evidence. A normative statement might be, "the government should increase the minimum wage to reduce poverty." This statement is normative because it makes a value judgment about what the government should do, rather than describing what will happen as a result of a particular policy change.

What's the Difference between Positive and Normative Economics?

Positive economics and normative economics are two different branches of economics that have different goals and approaches.
Positive economics is concerned with objective analysis of economic behavior and the development of scientific theories and models based on empirical evidence. It seeks to describe and explain economic phenomena as they are, rather than as they should be or could be. Positive economics is value-neutral and does not make any judgments about what economic outcomes are desirable or undesirable.

Normative economics, on the other hand, is concerned with making value judgments about economic outcomes and the policies that should be implemented to achieve them. Normative economics is concerned with what should be, rather than what is. Normative economics uses ethical or moral principles, political ideology, or other normative frameworks to evaluate economic outcomes and make recommendations for policy.

In other words, positive economics is concerned with describing and explaining economic behavior, while normative economics is concerned with evaluating economic outcomes and making policy recommendations.

Here's an example to illustrate the difference between the two: Suppose a positive economist studies the effects of a minimum wage law on employment and finds that it leads to a decrease in employment. The positive economist simply reports this finding and does not make any judgments about whether this outcome is desirable or not.

A normative economist, on the other hand, might use the findings of the positive economist to make a policy recommendation. For example, a normative economist who values the welfare of low-wage workers might recommend that the minimum wage be increased, despite the negative effects on employment.

Overall, the difference between positive economics and normative economics is important to understand because it shapes the way economists approach economic issues and the types of conclusions they draw.

Is Positive Economics Better Than Normative Economics?

Positive economics and normative economics are not necessarily better or worse than each other, as they serve different purposes and use different methodologies.

Positive economics is focused on objective analysis and tries to describe and explain economic phenomena without making value judgments. It is based on empirical data, and the goal is to provide accurate predictions of economic behavior and outcomes. Positive economics is essential for developing economic theories, testing them against real-world data, and providing a scientific basis for economic policy.

On the other hand, normative economics is focused on subjective analysis and attempts to make value judgments about what ought to be done in the economy. It is based on subjective beliefs, moral and ethical principles, and political ideology. The goal of normative economics is to formulate policy recommendations that align with these principles and values.

Both positive and normative economics have their strengths and weaknesses, and both are essential for understanding and improving the economy. Positive economics provides the empirical basis for economic research and policy-making, while normative economics provides a framework for assessing the moral and ethical implications of economic decisions.

In short, positive economics and normative economics are complementary approaches to understanding the economy, and neither is inherently better or worse than the other. The choice of which approach to use depends on the goals of the analysis and the questions being asked.

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Key Takeaways

Positive economics is the study and explanation of various economic phenomena.
The value of economic fairness, or what the economy "should be" or "ought to be," is the focus of normative economics.
Positive economics is founded on facts and cannot be approved or rejected, whereas normative economics is founded on value judgments.
The majority of public policy is based on a mix of positive and normative economics.