Economics · Ch 1 — Economics: An Introduction
Positive Economics and Normative Economics
Positive Economics and Normative Economics
Economics can also be divided by the kind of statement it makes, quite separately from the microeconomics/macroeconomics divide above. This second division is between positive economics, which deals with 'what is,' and normative economics, which deals with 'what ought to be.'
A positive economic statement is a statement of fact that can, in principle, be tested and verified against real-world data — it describes cause and effect without any value judgment. For example: 'When the price of petrol rises, the quantity demanded falls' is a positive statement; it can be checked against actual sales data.
A normative economic statement, by contrast, expresses an opinion, a value judgment, or a recommendation about what policy should be. For example: 'The government ought to reduce the price of petrol to help the poor' is a normative statement; it depends on what one believes is fair or desirable, and cannot simply be proven true or false with data.
| Basis | Positive Economics | Normative Economics |
|---|---|---|
| Nature | Descriptive — 'what is' | Prescriptive — 'what ought to be' |
| Testability | Can be tested against facts/data | Cannot be tested; depends on values |
| Example | 'India's inflation rate was 6% last year.' | 'India's government should spend more on subsidies.' |
| Free from value judgment? | Yes | No |
The branch of economic analysis concerned with facts and cause-and-effect relationships that can be tested against real-world evidence — it describes what actually happens, without j …
The branch of economic analysis concerned with value judgments and policy recommendations about what the economic outcome ought to be — it cannot be settled by facts alone because it rests …