L6

Positive Economics & Normative Economics.

Definition of Positive Economics.

Positive Economics is a branch of economics that has an objective approach, based on facts. It analyses and explains the casual relationship between variables. It explains people about how the economy of the country operates. Positive economics is alternatively known as pure economics or descriptive economics.

When the scientific methods are applied to economic phenomena and scarcity related issues, it is positive economics. Statements based on positive economics considers what’s actually occurring in the economy. It helps the policy makers to decide whether the proposed action, will be able to fulfil our objectives or not. In this way, they accept or reject the statements.

Definition of Normative Economics.

The economics that uses value judgments, opinions, beliefs is called normative economics. This branch of economics considers values and results in statements that state, ‘what should be the things’. It incorporates subjective analyses and focuses on theoretical situations.

Normative Economics suggests how the economy ought to operate. It is also known as policy economics, as it considers individual opinions and preferences. Hence, the statements can neither be proven right nor wrong.

Example.[1]

Country A is experiencing labor unrest over the minimum wage. In this situation, Normative economics will give a value judgment on why the proposed minimum wage should be approved or otherwise, using the “what should have been” or “what ought to be” approach.

Positive economics, on the other hand, would describe the economic situation and explain the proposed increment in minimum wage backing it up with facts, verifiable data, actual numbers, and empirical research.

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[1] https://thebusinessprofessor.com/en_US/economic-analysis-monetary-policy/positive-economics-definition