Positive economics is a branch of economics that describes various economic phenomena. It focuses on what is rather than what should be. It explains the objectively measurable outcomes and the causes of those outcomes. Normative economics, on the other hand, focuses on making value judgments about economic policies or decisions. It is concerned with what should be, rather than what is.
The two branches of economics, positive and normative, are complementary to each other and both provide important insights into economic decision-making. Positive economics provides an objective view of economic data while normative economics offers a subjective perspective that can help to inform policy decisions.
Together, these two branches provide a comprehensive overview of the economic landscape which can help guide decision-makers in their efforts to reach desired outcomes.
Positive vs. Normative Economics
| Positive Economics | Normative Economics |
|---|---|
| Positive economics is a branch of economics that focuses on analyzing and describing economic phenomena through facts and verifiable data, such as the behavior of markets and the effects of government policies. | Normative economics is a branch of economics that focuses on making value judgments (through opinions and recommendations) about economic issues such as bringing in policy for welfare of people. |
| Government-funded healthcare surges public expenditures. | The government should make available fundamental healthcare to every citizen. |
| It is objective statement and can be verified or tested. | It is subjective statement and so cannot be tested. |
| Positive economics finds answer of “what is”. | Normative economics finds the answer “what should be”. |
| It describes the economics issues clearly. | It provides the solution to the economics issues. |
| It uses scientific methods to identify cause-and-effect relationships in order to make predictions about how different economic variables will respond to various scenarios. | Normative economics involves making decisions on what should be done based on subjective opinion or value judgments, rather than being guided by objective data. |
What is Positive Economics?
Positive economics is the field of economic study that focuses on what actually happens in the economy. It is a non-judgmental approach to understanding the various factors that influence economic behavior. The economist uses positive economic theories and models to describe, analyze and predict how different variables interact with each other.
Positive economics does not make any value judgments; instead, it looks at observable facts and figures to draw conclusions about how the economy works. This data-driven approach makes it easier for economists to test their hypotheses, making it an effective tool for policymaking.
The difference between normative and positive economics is that while normative economics involves subjective opinion and value judgments, positive economics does not include any such elements. In other words, positive economics can be tested using empirical evidence rather than relying on value judgments or opinions.
Examples of Positive Economics
An example of positive economics is the study of how supply and demand interact in the market for a particular product or service. By analyzing data such as price movements over time, economists can identify trends and make predictions about future market conditions. Positive economics also looks at the effects of government policies on economic activity, such as taxation or trade agreements.
In addition, it examines the potential impacts of technological advances on production, consumption, and investment decisions. Positive economics provides a tool for understanding these complex interactions so that businesses and policymakers can make informed decisions.
Other examples of positive economics are here:
- Monopolies have proved to be inefficient.
- The desired rate of return on gambling stocks is higher compared to others.
- The relationship between wealth and demand is inverse in the case of inferior goods.
Why is positive economics important?
Positive economics is an important part of economic analysis. It is based on facts, data, and evidence-based research, making it a powerful tool for understanding the complex nature of the economy. Positive economics helps economists to identify opportunities for improvement and formulate policies aimed at achieving desired outcomes.
By using positive economics, economists can form a basis for making decisions without having to rely on subjective opinions or personal beliefs. Through this process, economists can accurately evaluate different economic scenarios and make informed predictions about future outcomes.
Positive economics has been used by economists to develop theories and models that help explain how markets work, how prices are determined, and how resources are allocated. It also helps economists make predictions about future economic events. The development of positive economics has helped economists better understand how the economy works and how governments can best manage their economies.
Overall, positive economics provides valuable insight into the workings of the economy and informs decision-makers in their efforts to make informed choices that benefit society as a whole.
History of Positive Economics
Economists have been using positive economics since the 19th century to analyze and interpret data in order to gain insight into the workings of the economy.
Positive Economics Methodology
Positive economics is a methodology within the field of economics that focuses on objective analysis and tangible results. It examines what has occurred in the past, as well as what may occur in the future. The aim of positive economics is to identify cause-and-effect relationships between economic variables and develop theories and models to predict future phenomena.
Positive economists attempt to explain why certain outcomes have occurred or are likely to occur, without making any judgments on policy implications or ethical considerations. Positive economics goes hand-in-hand with other aspects of economics such as macroeconomics, microeconomics, behavioral economics, and public finance, which all help explain how economies work.
Pros and Cons of Positive Economics
Some of the main advantages of positive economics include its focus on real-world data and its ability to identify cause-and-effect relationships between variables. Also, it can provide an objective basis for decision-making by helping us understand how different economic policies might impact various outcomes.
One potential disadvantage of this approach is that it may not be able to account for all factors influencing economic outcomes. For example, it may be unable to account for psychological effects or changes in subjective preferences over time. Additionally, some economists argue that positive economics does not adequately reflect moral considerations which may also have a significant impact on the way people behave in certain situations.
What is Normative Economics?
Normative economics is a branch of economics that focuses on making value judgments about what economic policies and outcomes should be. It is distinct from positive economics, which is focused on providing explanations for observed economic phenomena.
The main methodology of normative economics involves developing theories and models based on ethical values, goals, and objectives.
Its history also goes back to the 19th century when economists began using their empirical observations to make ethical evaluations.
Examples of Normative Economics
Examples of normative economics include recommending that taxes should be lowered, or that wages should be increased to reduce poverty. Other examples include advocating for government intervention in the market to increase competition, or even suggesting that certain industries should be entirely nationalized.
Normative economics also considers the impact of policy decisions on different social groups, such as discussing whether policies are likely to benefit the rich more than the poor. In general, normative economics examines what economic outcomes are desirable for society, instead of merely analyzing existing market trends.
An example of a normative statement would be “The government should raise the minimum wage”. Some other examples are:
- Developing countries should only accept democracy when their entire population is educated and liberated.
- No individual should be entitled to inheritances as it belongs to society.
- The government should implement strict wealth tax laws to decrease the uneven distribution of wealth.
Pros and Cons of Normative Economics
The pros of normative economics include that it gives people an opportunity to influence policy decisions, while the cons are that it can be subjective and hard to measure in terms of its impacts. Despite this, normative economics remains important as it provides an important perspective in understanding how different economic policies affect society as a whole.
What are the types of normative economics?
[[Heading:]] What are the types of normative economics?
There are three primary types of normative economics: ethical economics, welfare economics, and policy-oriented economics.
Ethical economics focuses on making value judgments based on ethical considerations, such as the fairness of an economic system or the consequences of a particular policy.
Welfare economics seeks to measure and promote social well-being through policy solutions.
Finally, policy-oriented economics uses empirical data to analyze the potential impacts of different policies, such as taxes or regulations.
Each type of normative economics has its own set of tools and techniques for evaluating different economic issues and making value judgments about how best to address them.
Key Differences Between Positive and Normative Economics
- Difference between capitalism and socialism
- Difference between elastic and inelastic demand
- Difference between inbound and outbound marketing
How do positive and normative economics work together?
Positive and normative economics are two distinct fields of study, but they work together to provide a better understanding of the economic system. Positive economics is a scientific approach to economics that analyzes how the economy works and what factors influence it. It uses empirical data to make predictions about how the economy will perform in the future. Normative economics, on the other hand, considers value judgments and opinions when making economic decisions. It is used to examine what actions should be taken and what policies should be implemented in order to improve economic efficiency or reduce poverty. Together, positive and normative economics can be used to develop effective economic policies that benefit society as a whole.
