Positive and Normative Economics

There are two fundamentally different approaches to teaching economics: positive and normative economics. This is important to know, depending on the approach chosen, the same topic may be presented in an entirely different way. Thus, being aware of this will help you gain a more comprehensive knowledge on economic issues. In general we can say that positive economics is an objective approach, while normative economics is a more subjective approach. We will explain what this means in more detail below.

Positive Economics

Positive economics is based on facts and purely objective. That means, it describes economic topics and issues without judging them. Because of this, positive economics is sometimes also referred to as the “economics of what is”. Don’t worry, this will make more sense once we get to the normative economics.

Now, how can you determine whether a statement is positive or not? One key aspect that will help you with this is whether the statement can be falsified or not. If it can be tested and proven (or disproven), it is a positive statement. At this point it is important to keep in mind that the name has nothing to do with the result of the test (i.e. it is still a positive statement even if the result of the test is negative).

To give an example, let’s look at a simple statement: “Lower income taxes result in lower unemployment“. This is a positive statement, because it does not carry a value judgement and it can easily be tested. In fact, all we need to do in order to find out if it is true or not is comparing data on income tax and unemployment.

Normative Economics

Normative economics is based on values and therefore inherently subjective. That means, it does not only describe economic issues but it judges them aswell. Therefore, normative economics is sometimes also called the “economics of what ought to be”. Going back to positive economics we can now see the major difference between the two approaches. One of them describes the world as it is, whereas the other describes the world as it should be.

So let’s talk about how you can identify a normative statement. The best way to do this is to look for modal verbs such as should, ought, or must. They indicate obligations that are often linked to values and personal opinions. In addition to that you can always check if the statement can be proven or disproven. If that is not the case you are most likely looking at a normative statement.

To illustrate this, let’s look at a another example statement: “The government should reduce income taxes“. This is a normative statement. There is no way we can prove (or disprove) that the government should reduce income taxes. The statement is solely based on personal values and opinions.

In a Nutshell

There are two fundamentally different approaches to teaching economics: positive and normative economics. Positive economics is based on facts and purely objective. It is is sometimes also referred to as the “economics of what is”. By contrast, normative economics is based on values and therefore inherently subjective. Hence, it is sometimes also called the “economics of what ought to be”.

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