Positive and Normative Economics

1. Positive and Normative Economics
Positive and normative are two branches of modern economics. While positive economics deals
with the various economic phenomena, normative economics focuses on what economics
should be and the value of its fairness.
In simpler words, positive economics is regarded as the ‘what’ branch, whereas normative
economics is the ‘should be’ or ‘ought to be’ section of economics. However, before moving
forward to the difference between positive and normative economics, you must know about
them in detail.
Meaning of Positive Economics:
Positive economics is the stream of economics that has an objective approach, relied on facts.
It concentrates on the description, quantification, and clarification on economic developments,
prospects and allied matters. This subdivision of economics relies on objective data analysis
and relevant facts and figures. Therefore, it tries to establish a cause and effect relationship or
behavioural relationship that can help determine as well as test the advancement of economic
theories.
Here, the study of economics is more objective and focuses more on facts. Moreover, the
statements are precise, descriptive and measurable. Such reports can be quantified with respect
to noticeable evidence and historical references.
A positive economics example is a statement, “Government-funded healthcare surges public
expenditures.” This statement is based on facts and has a considerable value judgement
involved in it. Therefore, its credibility can be proven or dis-proven via a study of the
government’s involvement in healthcare.
Examples of Positive Economics
 Monopolies have proved to be inefficient
 The desired rate of return on gambling stocks are higher compared to others
 The relationship between wealth and demand is inverse in the case of inferior goods
 House prices reduce once the interest rate on loans get higher
 Car scrap page schemes can result in a fall in the prices of second hand cars
Meaning of Normative Economics
Normative economics deals with prospective or theoretical situations. This division of
economics has a more subjective approach. It focuses on the ideological, perspective-based,
opinion-oriented statements towards economic activities. The aim here is to summarise the
desirability quotient among individuals and quoting factors like ‘what can happen’ or ‘what
ought to be’.

2. 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.
A normative economics example is, “The government should make available fundamental
healthcare to every citizen”. You can understand that this statement is based on personal
perspective and satisfies the need for ‘should be’ or ‘ought to be’.
Examples of Normative Economics
 The government should implement strict wealth tax laws to decrease the uneven
distribution of wealth
 No individuals should be entitled to inheritances as it belongs to society
 Import duties should be increased on goods coming from nations with humble human
rights record
 Investors ought to be more socially responsible and stop investing in vice stocks
 Developing countries should only accept democracy when their entire population is
educated and liberated
Difference between Positive and Normative Economics
1. Meaning
Positive economics means more focus on data, facts and figures rather than personal
perspectives. The statements here are to the point and supported by relevant information.
On the other hand, normative economics focuses more on personal perspectives and opinion
rather than facts and figures. Here the statements are based on an individual’s point of view,
and ample data is always available to support such claims.
2. Perspective
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.
Contrarily, normative economics focuses on presenting statements that may or may not be
possible in future. Moreover, in some cases, such statements do not have any credible data to
back it up.
3. Function
Their functions can distinguish between positive and normative economics. Positive economics
describes the cause and outcome of relationship among variables. On the other hand, normative
economics provides value judgement.

3. 4. Area of Study
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.
5. Testing
Every statement of positive economics can be tested scientifically and either proven or
disregarded. However, normative economics statements cannot be tested scientifically. It
entirely depends on the belief of an individual.
6. Economical Clarification
Positive economics provides a more scientific and calculated clarification on an economic
issue. However, normative economics also provides such solutions but ones that are based on
personal values.
Importance of Positive and Normative Economics
Even though normative economics is subjective, it acts as the platform of out-of-the-box
thinking. Such concepts can provide the foundation for ideas that have the power to reform an
economy. However, decisions cannot be made based on them; positive economics is needed to
provide the objective approach. It focuses on facts and analyses effects of such decisions in the
society and then provides a statement that comprises necessary information to make a decision.