What is a positive economic statement?
Positive economics is objective and fact-based where the statements are precise, descriptive, and clearly measurable.
What is a normative economic statement?
Normative economics focuses on the ideological, opinion-oriented, prescriptive, value judgments, and "what should be" statements aimed toward economic development, investment projects, and scenarios.
Provide a real world example of each (other than those given in the chapter)
An example of normative economics would be, "We should cut taxes in half to increase disposable income levels." By contrast, a positive or objective economic observation would be, "Based on past data, big tax cuts would help many people, but government budget constraints make that option unfeasible." The provided example is a normative economic statement because it mirrors value judgments. This particular judgment assumes that disposable income levels must be increased
Positive economics deals with objective explanation and the testing and rejection of theories. For example:
A fall in incomes will lead to a rise in demand for own-label supermarket foods
If the government raises the tax on beer, this will lead to a fall in profits of the brewers.
The rising price of crude oil on world markets will lead to an increase in cycling to work
A reduction in income tax will improve the incentives of the unemployed to find work.
A rise in average temperatures will increase the demand for sun screen products.
Higher interest rates will reduce house prices
Cut-price alcohol has increased the demand for alcohol among teenagers
A car scrappage scheme will lead to fall in the price of second hand cars
Please explain why each statement would be considered either positive or normative:
Common observations indicate that discussions around public policies typically involve normative economic statements. A higher degree of disagreements persists in such discussions because neither party can clearly prove their correctness.
Though normative statements are generalized and subjective in nature, they act as the necessary channels for out-of-the-box thinking. Such opinions can form the foundation for any necessary changes that may have the potential to completely transform a particular project. But normative economics cannot be the sole basis for decision-making on key economic fronts. Positive economics fill in for the objective angle that focuses on facts and cause-and-effect. Coupled with positive economics, normative economics may be useful in establishing, generating, and fulfilling new ideas and theories for different economic goals and perspectives.
A clear understanding of the difference between positive and normative economics may lead to better policy-making if policies are made based on a balanced mix of facts (positive economics) and opinions (normative economics). Nonetheless, numerous policies on issues ranging from international trade to welfare are at least partially based on normative economics.
Please include sources with your posting:
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
