Positive and normative economics

Difference between positive and normative economics is that normative economics includes statements about what ought or ought not to occur in economics affairs and positive economics includes statements about what does or does not occur in economics affairs. For example, statement in positive economics is: “inflation will be reduced if taxes are increased” and in normative economics: “inflation ought to be reduced”. The aim of positive economics is to explain how society makes decisions about consumption, production, and exchange of goods. This can help us to satisfy our curiosity about why the economy works as it does and it can help us to predict how the economy will respond to changes in circumstances.

As we can see, there is no scope for personal value judgments; we are only concerned with prepositions of the form: “if this is changed then that will happen.” Look for example the following statement in positive economics: “The elderly have very high medical expanses compared with the rest of the population”. It shows us how the world works: we can do a research and prove whether or not it is correct.

On the other side normative economics is based on subjective value judgments and statements in normative economics such as: “The Government should subsidize (help by giving money) health bills of the aged” could never be proved to be correct or false; some people might agree but some other might disagree with this recommendation about what the Government should do.

Economics is usually a positive science and economics confine themselves to positive statements.

On a smaller scale, positive economists only give alternatives open to individuals, and normative economists insist on one of them.