Positive and Normative Economics: Briefly Explained in Simple Terms
To understand the objectives of economic policy, it is necessary to know what positive and normative economics mean and how they differ.
The content of the article:
1 What does positive economics study?
2 What is normative economics?
3 Differences between positive and normative economics
What does positive economics study?
The answer to this question is as follows: positive economics involves the study and explanation of existing events and the relationships between them. In fact, studies affect those phenomena in the economy that are taking place at the present time.
As a rule, economic theory deals with what explains the processes of the economy and how to solve various problems. However, it does not provide any specific recommendations. This way of studying economic processes is called positive. This is the analytical part of the economy.
For example, the statement: “the trade turnover decreased by 20%” is positive. It only informs, but does not speak of any decision, as, for example, the phrase: “trade turnover must be increased.”
What is normative economics?
In turn, the normative nature of economics is to develop a policy or plan of action in order to make rational decisions. Normative economic theory gives specific recommendations regarding the actual situation in the economy.
We can say that normative economic theory answers the question “what to do”. It covers not only knowledge, but also actual performance, guided by information obtained through the application of positive economics.
This direction of science helps to determine the goals of society in the economic sphere. If we are talking about the micro level, then the goal of normative theory is to create a correct market mechanism that will be regulated by the state. At the macro level, the goal is economic growth, lower unemployment, overall balance and stability.
Differences between positive and normative economics
Normative economics, unlike positive economics, provides solutions to a problem and establishes which criteria are desirable and which should be avoided. If the positive theory says what is, then the normative one determines how it should be or how to proceed further, based on existing data.
Normative theory is designed to change the negative manifestations of the current economic system. This part of the economy causes a lot of controversy among specialists.