Difference Between Positive and Normative Economics

positive vs normative economics

Each of us must have an understanding on how the economy works. It will allow us to see if our policy makers are making the right economic decisions for us. We should be able to know how our behavior and spending habits affect the economy.

It is important therefore to know what economics is and learn about its different features and dimensions.

Economics is a social science that deals with the production, distribution, and consumption of goods and services. Its purpose is to explain how economies work and the interaction between its various agents. There are several dimensions of economics, namely:

� Microeconomics � examines the behavior of the consumers, producers, buyers, and sellers.
� Macroeconomics – examines issues that can affect the entire economy like unemployment, inflation, monetary and fiscal policy.
� Economic theory – provides a research outlet of economics with the use of theoretical reasoning and mathematical solutions.
� Applied economics – application of economic theory
� Rational economics – formulation of a framework the understanding of economic behavior.
� Behavioral economics � uses social and emotional factors in understanding the decisions of individuals and business entities in the performance of their economic functions.

� Positive Economics

Positive economics is the study of what and why an economy operates as it does. It is also known as Descriptive economics and is based on facts which can be subjected to scientific analysis in order for them to be accepted.

It is based on factual information and uses statistical data, and scientific formula in determining how an economy should be. It deals with the relationship between cause and effect and can be tested.

Positive economic statements are always based on what is actually going on in the economy and they can either be accepted or rejected depending on the facts presented.

� Normative Economics

Normative economics is the study of how the economy should be. It is also known as Policy economics wherein normative statements like opinions and judgments are used. It determines the ideal economy by discussion of ideas and judgments.

In normative economics, people state their opinions and judgments without considering the facts. They make distinctions between good and bad policies and the right and wrong courses of action by using their judgments.

Normative economic statements cannot be tested and proved right or wrong through direct experience or observation because they are based on an individual�s opinion.

Although these two are distinct from each other, they complement each other because one must first know about economic facts before he can pass judgment or opinion on whether an economic policy is good or bad.

Summary

1. Positive economics deals with what is while normative economics deals with what should be.
2. Positive economics deals with facts while normative economics deals with opinions on what a desirable economy should be.
3. Positive economics is also called descriptive economics while normative economics is called policy economics.
4. Positive economic statements can be tested using scientific methods while normative economics cannot be tested.

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