Positive vs Normative Analysis in Economics

Introduction

Economics is an educational subject thought in schools or universities. The experts in economics the so called economists are today being hired as business consultants, multimedia analysts and even advisers to government for policy framing because of their better understanding of the subject. Due to this it becomes essential to comprehend the intension of the statements made by the economists founded on facts regarding the way the world works or building assessed decisions to be enacted upon certain policies or what decisions must be taken in business. Economists thus made a distinction divided in two types of analysis that are positive and other the normative. Positive analysis is based on reality or the fact and poses the world as it is. Normative analysis is based on opinions and poses how the world should be.

Positive Analysis

Declarations by economists about the world that are illustrative and based on facts are considered positive declarations. This does not mean that the economists always express positive information. Evaluating this positive information is known as positive analysis. It is a division of economics that aims on illustrations and justification of events and their general associations. It concentrates mainly on the reality and reasoning their behavior based on which the economic theories are tested and developed. Hence we can say that it is a science that aims at evaluating economic behavior eliminating the possibility of assessed opinion. This means for example positive economics presumption would illustrate the impact of increase in money supply on inflation however it will not direct as to which policy should be pursued to this effect. Another example would be a statement like ‘the literacy rate in United States is higher than in Africa.’ This is a positive evaluation based on facts of the economic scenario but does not direct what steps should be taken to tackle this problem.

Normative Analysis

Normative declarations are wise versa to that of positive declarations. In this the declarations are more assessment based and dogmatic. They are assumptions based on verified facts and not facts itself. They actually fit in the beliefs, principles and values of economists who make such declarations. Evaluating such declarations is known as normative analysis. This means that it is a method of suggestion the course of steps to be taken to address a specific issue. Unlike positive declarations, this division of economics conveys value based conclusions. It aims at the economic equality and the resultant of a particular policy. These results are uncertain that can change depending upon the change in the evidence or its knowhow. Say for example a declaration such as "to save family dairy farms and improve their standard of living, milk should be priced at $5 per gallon" is a normative declaration because it evaluates the problem and also suggests the solution as well.

Positive vs Normative Analysis

Economists often disagree and are in constant debate pertaining to the positive and normative declarations they make. In order to substantiate their disagreements one must be able to distinguish between positive and normative approaches. In order to conflict a positive declaration of an economist, other realities must be enlightened to challenge the theory. For example a positive analysis states that the unemployment rate is at 8% then to challenge this statement a varied data with figures must be provided. On the other hand to differ on a normative declaration, one can either argue on the authenticity of the positive information used to derive to normative conclusion or challenge the conclusion itself. It is not always the case where economists work on true facts and figures performing positive analysis based on which the policy makers or consultants would make normative suggestions. Hence it is very important to differentiate between facts from beliefs. Positive economics is about the present situation and normative economics is about what the situation should be.

Conclusion

We can conclude that positive and normative economics are the two divisions of economics that deals with the reasoning of economics. However they are inter-related with one another but differ in their aims while evaluating the issues at question.

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