Positive and Normative Economics Examples, Differences and Importance – Anturio Corporation – Consultadoria Informática Lda

Positive and Normative Economics Examples, Differences and Importance

 

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Positive and Normative Economics Examples, Differences and Importance

Positive economics is objective and fact based, while normative economics is subjective and value based. Positive economic statements do not have to be correct, but they must be able to be tested and proved or disproved. Normative economic statements are opinion based, so they cannot be proved or disproved. While this distinction seems simple, it is not always easy to differentiate between the positive and the normative. Many widely-accepted statements that people hold as fact are actually value based.

positive statement in economics

It determines what should happen or what ought to be. Normative economics suggests the conclusions and solutions. Even though normative economics is a subjective study, it acts as a base or a platform for out-of-the-box thinking. These concepts will provide a basic foundation for the innovative ideas that will ignite to reform an economy.

Positive and Normative Economics – What is the difference?

Positive economics is not an exact science or logic. Positive economics assists in moving the economy in a certain direction. How the growth of the money supply influences inflation, without including the suggested policies.

The normative reason stems from a desire to make policy recommendations. Normative economics is based on subjective data, while positive economics considers objective data. Positive economics talks about various economic phenomena. It refers to objective analysis in the study of economics.

  • Normative economics can suggest policies to influence economic decisions.
  • Positive economics is the stream of economics that has an objective approach, relied on facts.
  • It is important for the overall development and progress of the nation.
  • Normative economics is important in establishing and generating new ideas.
  • Further you can also file TDS returns, generate Form-16, use our Tax Calculator software, claim HRA, check refund status and generate rent receipts for Income Tax Filing.

Further you can also file TDS returns, generate Form-16, use our Tax Calculator software, claim HRA, check refund status and generate rent receipts for Income Tax Filing. For example, macroeconomics will consider the contribution of Gross Domestic Product and Gross National product. The economics studies are important to analyze the economic growth of the nation and its status with the other countries. It is important for the overall development and progress of the nation. However, all the decisions cannot rely on them altogether. On the other hand, Positive economics is needed to provide an objective approach.

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Do you see the differences in the statements 1 and 2 given above? One is a description of what is (the unemployment rate is 5.3%) while the other expresses a value judgment (the unemployment rate should be less than 1%). If we want to conduct a valid economic analysis, then we must be willing and able to separate our views about what does happen in the economy from our views about what we would like to have happen in the economy. We must be willing and able to separate what the facts tell us about the questions that we want answered, from what our feelings tell us about how we want the answers to turn out. Quite simply, we need to be aware of the difference between a statement of fact and a value judgment. Economists refer to an analysis of fact as positive economics and an analysis based on value judgments as normative economics.

positive statement in economics

Positive economics is the branch of economics concerned with describing and explaining economic phenomena. It focuses on facts and behavioural relationships of cause and effect and includes the development and testing of economic theories. Because, Pareto efficiency, or Pareto optimality, is a state of allocation of resources in which it is impossible to make any one individual better off without making at least one individual worse off. The term is named after Vilfredo Pareto (1848–1923), an Italian economist who used the concept in his studies of economic efficiency and income distribution.

Normative economics can suggest policies to influence economic decisions. For example, microeconomics will assist how a company will maximize its production and capacity. Positive and Normative Economics do have some underlying differences between them. We will analyze the differences between them in terms of meaning, perspective, function, area of study, testing, economical clarification.

Positive and Normative Economics

Normative economics statements are subjective and rely heavily on values originating from an individual opinion. These statements are often very rigid and perceptive. Therefore, they are considered political or authoritarian. Microeconomics analyses how equilibrium of a consumer, a producer or an industry is attained but macroeconomics is concerned with determination of economy’s equilibrium level of income, employment and output. In the philosophical literature, the logical basis of such a relationship as dichotomy has been disputed. These controversies are reflected in the discussion of positive science in economics, where opponents are Gunnar Myrdal and a group of feminist Economic advocates.

positive statement in economics

Therefore, it tries to establish a cause-and-effect relationship or behavioral relationship that can help determine as well as test the advancement of economic theories. Positive economics, as such, prohibits judgements on economic value. For example, a positive economic theory might explain how the growth of the money supply influences inflation, but it does not guide what policy should be pursued. In normal language, normative economics can be defined as ‘what should’ or ‘what ought to be’ of economics.

Behavioral economics is also an example of normative economics. Given below are the major examples of positive statement in economics normative economics. As the name suggests, macroeconomics studies the economy of a broad system.

Economical Clarification

The perspective of these two concepts is a significant point of difference between them. Positive economics is objective, whereas normative economics is subjective. The focus of positive economics is on presenting relevant and more focused statements backed by actual data.

Positive economics is the stream of economics that has an objective approach, relied on facts. It concentrates on the description, quantification, and clarification of economic developments, prospects, and allied matters. This subdivision of economics relies on objective data analysis and relevant facts and figures.

A positive economics example is a statement, “Government-funded healthcare surges public expenditures.” This statement is based on facts and has a considerable value judgment involved in it. Therefore, its credibility can be proven or dis-proven via a study of the government’s involvement in healthcare. Positive economic analysis refers to the analysis in which we study what is or how an economic problem is solved by analyzing various positive statements and mechanisms. These are factual statements and describe what was what is and what would be. These statements can be tested proven or disproven and do not involve personal value judgments. For example if someone says that it is raining outside then the truth of this statement can be verified.

Reference book solutions

It helps to know the cause and effect relationship of a particular activity. Normative economics deals with the things as they should be. Thus it deals with idealistic situation instead of actual situation. Normative statements being ideal in nature can not be verified.  Personal income to personal consumption, since a higher income typically leads to increases in consumer spending.

Economists like Lionel Robbins considers economics as pure science. Positive economics is the study of ‘what is’; whereas normative economics describes ‘what should be’. One branch relies on a factual approach supported by data. Contrarily, normative economics relies more on personal opinions rather than actual data.

It includes economic development, investment projects, statements, and scenarios. Single decision of positive economics has a different impact on everyone. For consideration, raising rates may be important for slow growth and is a boon for lenders. But at the same time, https://1investing.in/ it is no less than a curse to borrowers. Certain decisions of positive economics are based on emotions more than logic. The no space to value and judgments in positive economics, allows the policy makers to frame required measures to tackle any economic conditions.

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