Question

Distinguish between Normative Economics and Positive Economics, with suitable examples.

Answer 1

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.

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.

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 opinion.

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