Positive & Normative Economics

 

As an economist it is vital to be able to distinguish between positive analysis and normative analysis.
For the exam you will be required to tell if a statement is positive or normative.

So here is how it goes…

Positive economics is facts and figures. They are statements which can be verified and tested.For example if I tell you that Burberry shares have gone up 16.2%, this is a positive statement because you can go out and test it.

So the definition for positive statements you need to know is: it is a statement that is testable or verifiable. It is a fact or assertion.
N.B – Remember in the example to give an example if you get a chance.

On the other hand, normative analysis is based on opinions – what in economics we call “value judgements”. An easy way to recognise them is to look for words like ‘ought’ and ‘should’. For example, if I say that the company Superdry should not be in the FTSE 250 then this is a normative statement because it contains the word“should” and it is my personal opinion. It cannot be tested or verified.

An example of a normative statement which does not contain should or ought is : “Some critics are calling for government intervention as rents are becoming unfairly high” – this is in fact taken from a past exam marks scheme. The reason why this is normative is because of the adjective ‘unfairly’ what is unfair to one person is not to another. The fact that someone can disagree with the statement is another easy way to tell the if the statement is normative.

For the exam this definition you need to know is: It is a value judgement which cannot be tested or verified.

TEST YOURSELF!

This is a great quiz to test your knowledge for the first section of economics including positive and normative analysis:
http://wps.aw.com/aw_miller_econtoday_14/60/15392/3940402.cw/index.html

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s