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    Positive and Normative Economics

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    Harsha Ojha
    Normative economics focuses on what the economy should be based on value judgments, rather than what it is based on facts like positive economics. Positive economics makes statements that can be proven true or false through testing, like the effect of tax rates on revenue. Normative economics makes statements of opinion about what is best for the economy, like whether unemployment or inflation is more harmful, which cannot be proven or disproven.

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    Positive and Normative Economics

    Uploaded by

    Harsha Ojha
    55 views2 pages
    Normative economics focuses on what the economy should be based on value judgments, rather than what it is based on facts like positive economics. Positive economics makes statements that can be proven true or false through testing, like the effect of tax rates on revenue. Normative economics makes statements of opinion about what is best for the economy, like whether unemployment or inflation is more harmful, which cannot be proven or disproven.

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    POSITIVE AND NORMATIVE ECONOMICS

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    Normative economics focuses on what the economy should be based on value judgments, rather than what it is based on facts like positive economics. Positive economics makes statements that can be proven true or false through testing, like the effect of tax rates on revenue. Normative economics makes statements of opinion about what is best for the economy, like whether unemployment or inflation is more harmful, which cannot be proven or disproven.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    55 views2 pages

    Positive and Normative Economics

    Uploaded by

    Harsha Ojha
    Normative economics focuses on what the economy should be based on value judgments, rather than what it is based on facts like positive economics. Positive economics makes statements that can be proven true or false through testing, like the effect of tax rates on revenue. Normative economics makes statements of opinion about what is best for the economy, like whether unemployment or inflation is more harmful, which cannot be proven or disproven.

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    Normative economics 

    focuses on the value of economic fairness, or what


    the economy "should be" or "ought to be."
    While positive economics is based on fact and cannot be approved or
    disapproved, normative economics is based on value judgments.

     Example of positive economics is, “an increase in tax rates ultimately results in a


    decrease in total tax revenue”.
    On the other hand, an example of normative economics is, “unemployment harms an
    economy more than inflation”.

    Positive Statements
    Positive statements (and positive reasoning more generally) are objective. As such, they can
    be tested. These fall into two categories. One is a hypothesis, like “unemployment is caused
    by a decrease in GDP.” This claim can be tested empirically by analyzing the data on
    unemployment and GDP. The other category is a statement of fact, such as “It’s
    raining,” or “Microsoft is the largest producer of computer operating systems in the
    world.” Like hypotheses, such assertions can be shown to be correct or incorrect. A
    statement of fact or a hypothesis is a positive statement. Note also that positive
    statements can be false, but as long as they are testable, they are positive.

    Normative Statements

    Figure 1. Positive statement: it’s raining.

    Although people often disagree about positive statements, such disagreements can
    ultimately be resolved through investigation. There is another category of assertions,
    however, for which investigation can never resolve differences. A normative
    statement is one that makes a value judgment. Such a judgment is the opinion of the
    speaker; no one can “prove” that the statement is or is not correct. Here are some
    examples of normative statements in economics:

     We ought to do more to help the poor.


     People in the United States should save more for retirement.
     Corporate profits are too high.

    These statements are based on the values of the person who makes them and can’t
    be proven false.

    Because people have different values, normative statements often provoke


    disagreement. An economist whose values lead him or her to conclude that we
    should provide more help for the poor will disagree with one whose values lead to a
    conclusion that we should not. Because no test exists for these values, these two
    economists will continue to disagree, unless one persuades the other to adopt a
    different set of values. Many of the disagreements among economists are based on
    such differences in values and therefore are unlikely to be resolved.

    It’s not uncommon for people to present an argument as positive, to make it more
    convincing to an audience, when in fact it has normative elements. Opinion pieces in
    newspapers or on other media are good examples of this. That’s why it’s important
    to be able to differentiate between positive and normative claim.

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