There are different views regarding the scope of economics such as positive, normative etc. It is very important to know the difference between positive and normative economics. Some differences of the two views are appended below.
Positive economics
The study of economics based on objective analysis. Most economists today focus on positive economic analysis, which uses what is and what has been occurring in an economy as the basis for
any statements about the future. Positive economics stands in contrast to normative
economics, which uses value judgments.
For example, a positive economic statement would be: "Increasing the interest rate will encourage people to save." This is considered a positive economic statement because it does not contain value judgments and its accuracy
can be tested.
Normative economics
A perspective on economics that incorporates subjectivity within its analyses. It is the study or presentation of "what ought to be" rather than what actually is. Normative economics deals heavily in value judgments and theoretical
scenarios. It is the opposite of positive economics.
Normative statements are often heard in the media because they tend to represent a theory or opinion rather than objective
analysis. Normative economics is a valuable way to establish goals and generate new ideas, but it should not be used as a basis for policy decisions.
An example of a normative economic statement would be, "We should cut taxes in half to increase disposable income levels"
There are different
views regarding the scope of economics such as positive, normative etc. It is
very important to know the difference between positive and normative economics.
Some differences of the two views are appended below.
|
Positive economics |
Normative economics |
|
Positive
economics is concerned with explaining what it is? That is it describes
theories and laws to explain observed economic phenomena. |
Normative
economics is concerned with what should be or what ought to be the things. |
|
According
to J.N. Keynes, “A positive science may be defined as a body of systematized
knowledge concerning what it is.” |
According
to J.N. Keynes, “Normative science is a body of systematized knowledge
relating to criteria of what ought to be and concerned with the ideal as
distinguished from the actual.” |
|
Positive
economics are broadly concerned with explaining the determination of relative
prices and the allocation of resources between different commodities. |
Normative
economics is concerned with describing what should be the things, what price
for a product should be fixed, what wages rate should be paid etc. |
|
Positive
economics states that monopolist will fix a price, which will equate marginal
cost with marginal revenue. |
The
normative economics states the value judgments. It meant the conception of
the people about what is good or bad. |
|
The
laws of positive economics are derives from set of axioms or propositions. |
The
normative economics is concerned with welfare propositions. |