Difference Between Positive and Normative Economics

Difference Between Positive and Normative Economics

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Jaya
Jaya Sharma
Senior Executive Content
Updated on Aug 1, 2023 17:33 IST

Positive and normative economics differ in their approach towards economic situations. Positive economics focuses on understanding and describing economic phenomena in a factual manner. Normative economics focuses on offering value-based solutions to economic issues.

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In this article on the difference between positive and normative economics, we will talk about the factors that distinguish the two. We will also discuss these two in detail.

Table of Contents

Also read: Difference Between Economy and Economics

Difference between Positive and Normative Economics

Let us understand the differences between positive and normative economics through the following table:

Parameters Positive Economics Normative Economics
Purpose Describing different economic phenomena Provides solutions to these economic issued based on value
Definition Positive economics relies on the past and present data for determining future situations  Normative economics deals with the fairness and value of economic principles
Discusses Cause and effect relationship Opinion and judgments
Nature Factual and descriptive Prescriptive
Action Uses data and facts for behavorial assessment. Making assumptions based on the opinions
Types of Arguments Objective Subjective
Verifiable Yes No

What is Positive economics?

Positive economics is the objective analysis of economics. It is an investigative process that helps understand what is currently happening or has happened in an economy to form the basis of predictions for the future. This part of economics relies on factual data based on which verifiable conclusions can be drawn. It talks about facts that can be either be proven or disapproved.

It looks at the fact-based economic relationships and behavioral finance and the cause-effect interaction for developing economic theories. Through positive economic theory, policymakers can implement normative value judgments by supporting statements with facts and analysis of behavioral relationships. This study of economic behavior profits making judgments on economic value. 

Advantages

The following are the advantages of Positive economics:

  • It is based on facts instead of opinions and value judgments.
  • Helps in formulating appropriate measures required for tackling economic conditions to drive the economy in a particular direction.
  • It can be tested for its accuracy due to the availability of facts.
  • Enables policymakers to make wiser decisions due to the availability of factual data. 
  • Helps in backing up claims with factual data that is available in positive economics.

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Drawbacks

Even though Positive economics works on facts, it does have certain limitations:

  1. Most people are governed by emotion which makes them overlook the positive economics. 
  2. Decisions based on positive economics do not have the equal and same impact on every person.
  3. There is no guarantee that the facts will remain the same even in the future. 
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What is Normative Economics?

Normative economics is not based on facts and is rather based on the ideological principle that expresses the conditions of the economy whenever public policy changes are made.  It is not based on facts and is rather based on the ideological principle that expresses the conditions of the economy whenever public policy changes are made. 

This is a study related to what should happen instead of what is currently happening. This part of economics deals with normative statements and focuses on the idea of fairness. Since it is an opinion-based analysis, it is affected by the value judgments. In normative economics, outcomes are assessed as either good or bad. Due to the nature of this part of economics, there is no method to prove or disprove an opinion.

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Advantages

Normative economics has the following advantages: 

  1. It helps in identifying and classifying different aspects of economics as either good or bad. 
  2. People have the freedom of expressing their opinions.
  3. It provides prescriptive pragmatics to maximize the utility of option.

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Drawbacks

The following are the drawbacks of Normative economics:

  1. There are no facts to verify whether the opinion is accurate or not. 
  2. It accounts for individual opinions which do not have factual accuracy in most of the cases. 
  3. Decision-makers must rely on assumptions with incomplete knowledge about the area of interest.
  4. There are multiple variations for real situations. It provides unrealistic considerations that cannot be applied to the real life. 

Conclusion

While normative economics value the opinions of people, positive economics is irreplaceable for making practical decisions. Most economists are inclined towards positive economics due to the availability of facts. This helps them in verifying the statements later on when required. However, to achieve an ideal economic situation, normative economics provide ideal solutions. It is important to use both positive and normative economics to make the most suitable public policies. 

About the Author
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Jaya Sharma
Senior Executive Content

Jaya is a writer with an experience of over 5 years in content creation and marketing. Her writing style is versatile since she likes to write as per the requirement of the domain. She has worked on Technology, Fina... Read Full Bio

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