In Economics, What Is The Difference Between Positive Analysis And Normative Analysis?
Posted by Stephen Cline on January 22nd, 2010I’ve looked these two terms up, but I never find them listed as positive or normative analysis, instead I keep finding normative/positive economics. Are those the same things? Also, could you give me an example of each type of analysis? Thanks!
Tags: Analysis, Between, Difference, Economy, Normative, Positive
Normative economic analysis refers to economic statements or theories that cannot be empirically proven whereas positive economic analysis refers to economic statements or theories that can be empirically proven. For example “a ban in smoking in public places will reduce the revenue of the tobacco industry” is a positive statement because you can collect data to prove whther it is true or false. On the other hand, the statement “unemployment is preferable to inflation” is a normative statement because it reflects a personal belief and thus cannot be verified or falsified.
Best read an older textbook e.g any introductory economics book by Richard Lipsey or earlier edition of Samuelson and Nordhaus.
To make it simple,
Positive statements are statements that attempt to describe the world as it is while Normative statements (prescriptive statements) are statements which states how the world should be. Normative statements often provides solutions to current economic problems.
Ex:
Positive: Smoking is bad for our health
Normative: The government should ban smoking.
Positive economics is the one that simply states facts and uses empirical evidence. An example statement is: “According to the law of demand, a lower price will yield more quantity sold.”
Normative economics is the one that takes values into account, and results in statements like: “This tax *should* be reduced.”
I think both are important, and the best choice usually involves factoring in both types of economics. While precedent and other empirical evidence may suggest one thing, it is never good to simply dismiss legitimate normative theories.