Positive vs Normative Analysis in Economics

Introduction

It is very common for economists to work as media analysts, business consultants, and advisers on government’s economic policies. So, when economists make proof based objective statements on how things work in the world, they make value judgments about policies that need to be passed or the business decisions which need to be taken.

Positive Analysis

Detailed, factual statements about the world are known are known as positive statements among economists. The term ‘positive’ is used to mean that economists always provide good news, and are known for making negative positive statements. Positive analysis uses scientific principles in order to reach unbiased conclusions which can be tested. Positive analysis of economic growth takes into account calculation of values of goods as well as services produced so as to satisfy the demands and needs of consumers. Value of produced output, if measured with accuracy is a fact. Positive analysis takes into account discussions of ways in which economic growth can be enhanced. This includes investments in education, technology and physical education or increased specialization and trade.

Normative Analysis

Economists often refer to applicable, value based statements called normative statements. These types of statements normally use factual evidence to justify their claims, but in contrast to positive analysis, are not factual. In fact, they take into account opinions, standards and innate morals of the people who make statements. Normative analysis is the process of making recommendations about which action needs to be taken on a specific viewpoint of a topic. For instance, normative analysis suggests that to increase investments in the education system, property taxes need to be increased for greater funding for schools.

Positive vs. Normative Analysis

Any statement on nature of economic activities which affect the well being of people in one way or the other affect the well being of people is a vital tool for decision making. For instance, if there is an increase in prices of all essential commodities, what will be the impact on purchasing power of consumers? A positive economic statement provides a clear, to the point explanation on the cause as well as effect relationship of the economic statement. It is used to describe the relationship. Normative analysis on the other hand, is used to predict what is going to happen to the economy. If we are able to predict the exact things which are going to happen to the major economic variables that have an impact on lives of people, they will be prepared to take important actions in case they don’t like predicted consequences. What economists expect to take place or will take place in the future is known as normative analysis.

Conclusion

Positive analysis is the study of casual relationships which exists in an economy. It only takes into account what the relation is. No value judgments are involved. Normative analysis on the other hand deals with what economic relationships need to be. Value judgments play a vital role in ranking probable objectives and choices to be made amongst them.

This article has been compiled by Evelyn, who is a writer on various academic topics.