Positive Vs Normative Economics - EconomicSea

To solve the central problems of the economy (what to produce, how to produce, and for whom to produce), there are various solutions to the problem. Hence positive and normative economics is studied. Now, we will explore both types one by one.

Positive Economics

•          Positive economics is fact-based economics that focuses on the quantification, description, and explanation of economic activities. Simply put, it just explains the relevant facts. In this, we study how different systems work in an economy.

•          It analyses the cause and effect relationship.

•          Positive economics describes what is actually happening in the economy. And this will help policymakers as to what steps should be taken to fulfill the objective.

•          Examples :

1.         The government imposes a tax on cigarettes, this will reduce demand. (For addicted smokers, this statement is not true at all and that is why it is positive economics. But usually, when the government imposes a tax on goods, its demands eventually drop and this can be verified by looking at the figures/statistics.)

2.         If prices of goods fall, demand rises, assuming other factors remain constant. (This is not an opinion and also not a judgment, it is a descriptive statement that can be true or false.)

Normative Economics

•          Normative Economics, try to understand whether this system is desirable or not. It is not based on facts as it is subjective. Normative Economics shows us the picture of “what should be”, the opinions of economists and experts.

•          It focuses on a value judgment, opinion-oriented aimed at the development of the economy.

•          Normative Economics suggests how the economy should operate.

•          Examples :

1.         The government should provide basic education to all the citizens of the country. (This is the right of every individual.)

2.         To reduce inequalities, the government should implement strict tax laws.

Conclusion

After the above observation, we can clearly say that both positive and normative economics complete each other. To create a policy of country both study is needed. And this clear distinction between them can lead to better policy-making of policies based on a balance of positive and normative economics.