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Normative Vs Positive

Positive economics analyzes economic issues based on empirical data to explain what is happening, without ethical judgments. Normative economics makes value judgments about what economic outcomes should be based on social welfare. Positive economics uses models and testing to explain economic phenomena, while normative economics involves ethical considerations to make policy recommendations. Examples provided analyze wage determination as positive economics but calling for a higher minimum wage as normative, and analyzing private costs of brick production as positive versus imposing taxes to account for social costs as normative.

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Samyak Bajracharya
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114 views

Normative Vs Positive

Positive economics analyzes economic issues based on empirical data to explain what is happening, without ethical judgments. Normative economics makes value judgments about what economic outcomes should be based on social welfare. Positive economics uses models and testing to explain economic phenomena, while normative economics involves ethical considerations to make policy recommendations. Examples provided analyze wage determination as positive economics but calling for a higher minimum wage as normative, and analyzing private costs of brick production as positive versus imposing taxes to account for social costs as normative.

Uploaded by

Samyak Bajracharya
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPS, PDF, TXT or read online on Scribd
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Positive and Normative

Analysis
Economics as a positive science and
Normative science

1 Bindu Raj Khanal


Positive Vs Normative
Economics
We can simply think about the
thoughts: one explaining ‘what is the
reality’ and next explaining ‘what
should be’.
Economics can be explained in
similar fashion broadly categorized
2
as:Bindu Raji)
Khanal positive economics ii)
Normative economics
POSITIVE ECONOMICS
Positive Economics deals with or
studies ‘what is’ or how the economic
problems facing a society are actually
solved. Positive economics aims to
explain cause and effect relationship
between or among the economic
issues and problems, and is devoid of
any ethical position or value
judgments, is primarily empirical or
statistical in nature.
3 Bindu Raj Khanal
POSITIVE ECONOMICS
Thus, positive economics is related to the
explanation of economic events as what
they are. More strictly, positive
economics operates by use of economic
models, logically deduction, and
statistical testing. It is positive in the
sense that it excludes the personal or
societal biasness towards the analysis of
problems. It explains the phenomenon
under study with the help of a theory
POSITIVE ECONOMICS
Why do doctors earn more than
janitors (gatekeepers)?
 Does free trade raise or lower
wages?
What are the effects of higher taxes
on cigarette?
Price control leads shortage.
Food Problem in Karnali region.
Diarrhea in Kalikot.
NORMATIVE ECONOMICS
Normative economics on the other hand
deals with or studies ‘what ought to be ‘ or
‘what should be’ the economic problems
solved. It always asks ‘what is best’ or
‘whether it is good or bad’ instead of what
reality is. Normative economics is based on
positive economics and value judgments of
the society. It provides guidelines for policy
makers so as to increase and possibly
maximize the social welfare.

6 Bindu Raj Khanal


NORMATIVE ECONOMICS
Normative economics, on the
other hand, deals with ethical
considerations and value
judgments. Basically, normative
economics involves ethical
precepts (principles) and norms
(standards) of fairness. Hence, the
normative statements are the
conclusions.
NORMATIVE ECONOMICS
Should poor people be required to work
if they are to get government
assistance?
Should unemployment be raised to
ensure the price inflation does not
become too rapid?
Whether government should raise taxes
on cigarettes?
Government should subsidize medicine
for the Kalikot peoples.
POSITIVE vs. NORMATIVE
ECONOMICS
 Example 1. Through the bargaining, producer who
own farm and labors, who are willing to sell their
labor, they agree at a wage rate say Rs. 100 per day.
But the labor union later feels that this wage rate is
too low to maintain the subsistence. Labor union
urges the government to increase the wage rate.
(Here the economics that deals with the wage rate
determination on farm through the interaction of farmer and
labors is positive economics; whereas the economics that set
the base for the increase in the wage rate- the job of policy
makers- is related with normative economics. Clearly, the
former just explains ‘what actually is’ in the market while later
explains ‘what should be’ referring the wage rate is low
(question of good or bad). Later one includes the value
judgment whereas the former exclude it).

9 Bindu Raj Khanal


POSITIVE vs. NORMATIVE
ECONOMICS
Example 2: The firm producing bricks, which is
established at Duwakot of Bhaktapur, sets the
price of brick considering its cost of productions
and some margins for the profits. That is, firm just
considered the private cost of producing the
bricks but not the social cost as a whole. Social
cost is the cost bear by the society due to dust
and the health problems. Society later ask
government to impose the tax so as to increase
the price so that it reflects true social cost and
compensate them for the cost due to this brick
industry. (Explain positive and normative aspects)

10 Bindu Raj Khanal

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