Positive Economics and Normative Economics

Economic statements can be classified into two broad kinds, depending on whether they describe facts or recommend values.

Positive Economics deals with 'what is' — it describes and explains economic phenomena as they actually exist, and its statements can, in principle, be tested and verified against real-world facts and data. A positive statement does not involve any value judgement about whether an outcome is good or bad; it simply states a fact or a cause-and-effect relationship. For example, 'India's rate of inflation was 6% last year' and 'A rise in the price of petrol reduces the quantity of petrol demanded' are both positive statements — they can be checked against actual data and are either true or false.

Normative Economics, by contrast, deals with 'what ought to be' — it involves value judgements about whether an economic outcome or policy is desirable, fair, or good, and its statements cannot be settled by facts alone because they depend on ethical or social values that reasonable people can disagree about. For example, 'The government OUGHT TO increase the minimum wage' and 'Income inequality is unjust and should be reduced' are normative statements — they express an opinion about what is desirable, not a testable fact.