Positive vs. Normative Economics: A Detailed Comparison

By Indeed Editorial Team

Published 5 May 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Modern economic principles play a critical role in comprehending business concepts across a wide range of industries. Positive and normative economics are perspectives regarding the economy's practical and idealistic financial situation. Learning more about these economic perspectives can help you better assess the financial health of a company. In this article, we examine positive and normative economics, their importance and various aspects of positive and normative economics, along with the key differences between them.

Positive vs. normative economics

Comparing positive vs. normative economics can assist you in articulating socio-political factors that shape and influence economic policies and challenges. Positive economics makes genuine, verifiable and objective statements. As a result, professionals may make judgments based on such information. It's helpful to utilise normative economics to develop and apply a reformist perspective to what is already happening in the economy. It encourages individuals to ponder and come up with answers to economic challenges. The following are ways in which positive and normative economics differ from each other:

Format

Normative economics relies on opinion-based statements with a single focus, rather than multiple focuses. These economic statements are often one sentence long and make judgements or declare opinions without providing context or explanation for why such opinions exist. Normative economics statements often depict a cause-and-effect relationship and employ demanding language, such as:

  • would

  • should

  • ought

Positive economics typically uses objective statements with multiple focuses and complicated sentence structures. Positive economics statements usually describe current or previous events in the past or present tense. These statements may provide a context for facts. Positive economic statements may comprise several sentences and may frequently employ objective language, such as:

  • will

  • does

  • needs

Purpose

Normative economics describes situations to demonstrate perspectives and opinions. It frequently employs authoritative language to propose remedies to current economic issues. Not all normative economic statements resolve problems and some just express an opinion or make a remark. By stating an opinion about a current event or choice, normative economics can promote or demote an economic value. For example, government-funded healthcare helps low-income communities is a normative economic statement.

Positive economics describes facts to explain and present historical data. People may use positive economic statements as evidence for their economic ideas since they're objective. Positive economics can occur in opinion-based or value-based contexts, but it doesn't inevitably support any specific bias. Economists also utilise positive economics in economic theory to establish multiple cause-and-effect relationship standards. Positive economics can aid in the development of historical and behavioural economic theory.

Study

While economists rarely use normative economics alone to explore different branches of economics, they can use it to assess public opinion. Normative economic statements can aid historical economists in evaluating and recording societies' and individuals' economic beliefs across time. Economists can also use this information to forecast future economic events.

In contrast, positive economics can aid economists in accurately studying multiple aspects of economic events. As positive economic statements are objective, economists may draw conclusions from them to investigate behavioural, sociological and historical economics as financial events unfold, both positively and negatively. Positive economic statements are based on facts and studying them can aid individuals in positions of leadership in making key economic decisions.

Users

Normative economics can assist policymakers in understanding what people want in their communities, which can be useful when developing government or business plans to meet those requirements. Company leaders can utilise normative economics to make judgments that can help them satisfy client requirements and retain customers. Some politicians and government officials may utilise positive economics to assess history objectively. While government officials use a combination of normative and positive economics, positive economics can assist officials in comprehending the outcomes of their actions and understanding how certain decisions can benefit communities in the future.

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Verification

The interpretation of positive economics and its outcomes is verifiable. Test reports, research papers and specialist analytics teams provide assistance throughout the world to generate factual information on the current status of the economy. Implementing the outputs of positive economics is safe and scientifically verifiable.

It can be challenging to comprehend the interpretations of normative economics as it's based on certain forms of conditioned data assumption. Normative economics doesn't involve scientific study and strategy testing to support its statements. They present subjective viewpoints and judgements. There is no method to assess their practicality and usefulness across a variety of professions and industries.

Approach

Positive economics describes facts as they're in the real world. Positive economics may not have an intention of resolving the concerns of an economy. It reports or displays figures, economic behaviour and economic consequences, without offering any suggestions or making any effort to improve the situation, no matter how serious the economic crisis is. Positive economics may not concentrate on policy formation to address the economic issues that surround it. It typically doesn't translate into action by itself.

Normative economics takes up a comprehensive approach to identifying the problems of the economy and the people and enterprises that constitute it. It takes an idealistic approach to issues. Normative economics is an action-oriented area of study. It commits itself to encourage policy development and implementation. It also aspires to discover solutions to issues, besides pondering over them.

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What is positive economics?

Positive economics is a branch of economic thinking that focuses on understanding economic and financial events. It establishes cause-and-effect relationships between human behaviour and economic theory using objective data and historical facts. Positive economics uses written statements to demonstrate that relationships are precise and quantifiable. Professionals who make optimistic economic statements often use behavioural or societal economics to support their claims. Here's an example of a positive economic statement:

Families' private spending increases because of government-funded school systems.

Economists can use research on educational systems and private spending to confirm or reject the claim. Positive economic statements can assist in demonstrating relevant economic terms and their implications since they analyse current economic situations and societal standards. It can lead to various opinions and different judgements.

Why is positive economics important?

Positive economics is important because it illustrates economic concepts using objective terms. It may help economists explain situations to the public in simple terms and encourage economic change. Positive economics can be effective for analysing recent events since it uses factual data. It can also apply to historical economics or the study of past events from an economic standpoint. As it's a tested and quantifiable format, economic leaders may utilise positive economics to make persuasive and informed decisions.

What is normative economics?

The economic thinking category of normative economics focuses on ideological economic situations. The purpose of normative economics is to summarise a person's desire or lack of desire for a certain economic situation by expressing what may or may not occur. This branch of economics makes value judgements about an economic position or aspiration based on personal or subjective perspectives. To make statements about prospective economic developments, situations or investment consequences, normative economics employs opinion-based reasoning and personal viewpoints. These statements might stem from personal experiences, sentiments or political inclinations. Given below is an example of a normative economic statement:

The government ought to provide free schooling for all children and adolescents.

This statement qualifies as a normative economic statement since it summarises a personal viewpoint. Depending on who makes the statement, normative economic statements like these may seem inclined toward certain political or value-based opinions. These statements are not verifiable. There is no evidence or study to back up these claims. It's, at most, a judgement based on previous comparable situations. It can be challenging to anticipate whether the outcome is the same or different from what the statement predicts.

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Why is normative economics important?

Normative economics enables individuals in positions of leadership to develop a better understanding of the economic preferences of others and to anticipate how the public may respond to their actions. Normative economic statements can be valuable for understanding psychological and sociological economics as it accounts for behavioural factors and influences. These statements can explain basic economic concerns and illustrate ideas clearly to inspire economic decisions and enhance a broad understanding of economic situations.

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