Positive and Normative Economics
We all know that the term economics is defined as a social science. There has been a discussion about this term whether it is called a normative science or a positive science. But the debate ended with the conclusion that it is both positive and normative science. Economics not only tells us about the happening of certain things but also says whether it is the right thing to happen or not.
Positive Economics
If we consider economics as a positive science then it means that the term economics can be only used for describing as positive science only describes the things. Positive science only explains things as they happen in reality. It generally explains what is, what was, and what will be. Therefore we can consider economics as a positive science as it describes the cause and effect relationship between various economic phenomena.
For example, the cause and effect relationship between price and demand of a commodity can be explained by the law of demand.
Normative Economics
We cannot separate the term economics from the normative aspect because it is the kind of duty of many economists to have a careful study of various economic problems along with suggesting the different ways to solve those problems. Normative Science studies things as they should be which is related to the criteria of’ what ought to be’.
Difference between Positive and Normative Economics
Positive Economics |
Normative Economics |
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1. Positive Economics expresses what is. 2. It is based on cause and effect of facts. 3. It deals with actual or realistic situation. 4. It can be verified with actual data. 5. In this value judgements are not given. It is neutral between ends. 6. It deals with how an economic problem is solved. 7. Economists of positive school are Adam Smith and his followers. 8. Observe these examples: (a) What determines the price rise? (b) Government has adopted policies to reduce unemployment. (c) The rate of inflation in India is 6 per cent. (d) Chemistry |
1. Normative Economics expresses what should be. 2. It is based on ethics. 3. It deals with idealistic situation. 4. It cannot be verified with actual data. 5. In this value judgements are given. 6. It deals with how an economic problem should be solved. 7. Economists of normative school are Marshall, Pigou, Hicks, Kaldor Scitovsky. 8. Compare these examples: (a) What is a fair price rise? (b) Unemployment is worse than inflation. (c) The rate of inflation should not be more than 6 per cent. (d) Ethics. |
Interdependence of Positive and Normative Economics
Positive as well as normative factors have played a role in the progress of economics. These two aspects are intertwined. The role of an economist is not only to explain and explore (i.e., positive aspect) but also to admire and condemn (i.e., negative aspect.) This role of an economist is essential for a healthy and rapid growth of an economy. Examples of statements which contain both positive and normative economics are:
- An increase in the price of a good leads to a decrease in its demand; thus, government should restrain price increases.
- Because the Rent Control Act provides accommodation for those in need, it should be implemented honestly.
- India’s economy is a developing one. By properly planning it, the Government can make it more developed.
Each of the above three examples begins with a statement giving facts and ends with a statement expressing value judgements.
Positive and Normative Economics MCQs
Which of the following is a positive economic statement?
A) Government programs to help the poor are just making problems worse.
B) One in every five children in the United States is living in poverty.
C) Increases in poverty rates signify a deterioration of the U.S. economy.
D) The number of families living in poverty in the United States is high.
The correct answer for the given question is option B) One in every five children in the United States is living in poverty.
Which of the following is an example of a positive economic statement?
A) Pollution is one of the most serious economic problems.
B) Higher interest rates will encourage more savings.
C) The pricing policies of monopolies should be strictly supervised.
D) Unemployment is more harmful than inflation.
The correct answer for the given question is option B) Higher interest rates will encourage more savings.
Which of the following is a normative statement?
A. Reducing the budget deficit will also reduce the balance of trade deficit.
B. Tariffs on imported cars result in higher prices for domestic auto consumers.
C. A tax cut will cause higher inflation.
D. Governments should spend more to aid the poor.
The correct answer for the given question is option D) The governments should spend more to aid the poor.
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I am Smirti Bam, an enthusiastic edu blogger with a passion for sharing insights into the dynamic world of business and management through this website.
I hold a MBA degree from Presidential Business School, Kathmandu, and a BBA degree with a specialization in Finance from Apex College,
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