Positive and Normative Economics: Economics is often divided into two major aspects – positive and normative. Positive economics explains how the world works. The primary difference between Positive and Normative Economics; concerns with what is, rather than with what ought to be. Normative economics is concerning what ought to be rather than what is. It proposes solutions to society’s economic problems. That there is unemployment in India is a problem of positive economics. What measures can adopt to solve the problem is a problem of normative economics. Normative economics also knows as welfare Economics.
How to Explain the difference between Positive and Normative Economics?
The distinction between positive economics and normative economics may seem simple, but it is not always easy to differentiate between the two. Positive economics is objective and fact-based, while normative economics is subjective and value-based. Positive economic statements must be able to test and prove or disprove. Normative economic statements are opinion based, so they cannot prove or disprove. Many widely-accepted statements that people hold as fact are value-based.
For example, the statement, “government should provide basic healthcare to all citizens” is a normative economic statement. There is no way to prove whether the government “should” provide healthcare; this statement is based on opinions about the role of government in individuals’ lives, the importance of healthcare, and who should pay for it.
The statement, “government-provided healthcare increases public expenditures” is a positive economic statement, as it can prove or disprove by examining healthcare spending data in countries like Canada and Britain, where the government provides healthcare.
Disagreements over public policies typically revolve around normative economic statements, and the disagreements persist because neither side can prove that it is correct or that its opponent is incorrect. A clear understanding of the difference between positive and normative economics should lead to better policy-making if policies are made based on facts (positive economics), not opinions (normative economics). Nonetheless, numerous policies on issues ranging from international trade to welfare are at least partially based on normative economics.
Positive Science or Normative Science!
Positive science implies that science which establishes the relationship between cause and Effect. In other words, it scientifically analyses a problem and examines the causes of a problem. For example, if prices have gone up, why have they gone up.
In short, problems are examining based on facts. On the other hand, normative science relates to normative aspects of a problem i.e., what ought to be. Under normative science, conclusions and results are not based on facts, rather they are based on different considerations like social, cultural, political, religious, and son are is subjective, an expression of opinions.
In short, positive science concerns with “how and why” and normative science with ‘what ought to be’. The distinction between the two can explain with the help of an example of an increase in the rate of interest. Under positive science it would look into why the interest rate has gone up and how can it reduce whereas under normative science it would see as to whether this increase is good or bad. Three statements about positive and normative science each are given below:
The following topic below are;
- The main cause of price-rise in India is the increase in the money supply.
- It bases on a set of collected facts.
- Prices and inequalities of income level in an economy.
- Production of food grains in India has increased mainly because of an increase in irrigation facilities and the consumption of chemical fertilizers.
- The rate of population growth has been very high partly because of the high birth rate and partly because of the decline in the death rate.
- Studies with what is or how the economic problem originally solves.
- It can verify with the original data.
- It aims to provide an original description of economic activity.
The following topic below are;
- Inflation is better than deflation.
- It bases on the opinion of the individual.
- The government should generate more employment opportunities.
- More production of luxury goods is not good for a poor country like India.
- Inequalities in the distribution of wealth and incomes should reduce.
- Studies with what ought or how the economic problem should solve.
- It cannot verify with the original data.
- It aims to determine the principles.
Positive and Normative Economic Statements:
The following Statements topic below are;
Positive statements: Positive statements are objective statements that can test, amend, or reject by referring to the available evidence. Positive economics deals with objective explanations and the testing and rejection of theories. For example; A fall in incomes will lead to a rise in demand for own-label supermarket foods. And, If the government raises the tax on beer, this will lead to a fall in profits of the brewers.
Normative Statements: A value judgment is a subjective statement of opinion rather than a fact that can be tested by looking at the available evidence. Normative statements are subjective statements – i.e. they carry value judgments. For example; Pollution is the most serious economic problem. Unemployment is more harmful than inflation, and. The government is right to introduce a ban on smoking in public places.