Positive and Normative Economics

18 Apr

Both macroeconomics and microeconomics involve facts, theories, and policies. Each contains elements of ositive economics and normative economics. Positive eco­nomics focuses on facts and cause-and-effect relationships. Positive economics avoids value judgments, tries to establish scientific statements about economic behaviour, and deals with what the economy is actually like. Such factually based analysis is critical to good policy analysis.

In contrast Normative economics incorporates value judgments about what the economy should be like. Normative economics looks at the desirability of certain aspects of the economy. It underlies expressions of support for particular economic policies.

Positive economics concerns what is, while normative economics embodies sub­jective feelings about what ought to be. Here are some examples. Positive statement: “The unemployment rate in several European nations is higher than that in Canada.” Normative statement: “European nations ought to undertake policies to reduce their unemployment rates.” A second positive statement: “Other things equal, if tuition is substantially increased, college and university enrolment will fall.” Normative state­ment: “College and university tuition should be lowered so that more students can obtain an education.” Whenever words such as “ought” or “should” appear in a sen­tence, there is a strong chance you are encountering a normative statement.

Terms:

Positive economics-The analysis of facts or data to establish scientific generaliza­tions about eco­nomic behaviour.
Normative economics-The part of econom­ics involving value judgments about what the economy should be like.
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