Positive and normative statements

Economics involves model building, gathering real world data, analysing this data, constructing theories and forecasting likely events from limited evidence. In doing this, economists make 'statements' about what they are analysing. For economics to be regarded as a social science the statements made by economists must be capable of being verified or falsified.

Positive statements and positive economics

Economic models and theories are developed and tested through the use of ‘positive’ statements rather than ‘normative’ ones. Positive statements involve attempting to objectively describe and analyse actions and systems by considering what ‘is’ happening in the current period of time, what ‘has’ happened in the past, and what ‘might’ happen in the future.

Positive economics concerns the attempt to understand the ‘causes’ of events, and whether the events have a negative or positive impact.

For example, economists might wish to explain the causes of a general rise in prices - inflation - and also its likely effects of inflation on individuals, families, firms and the wider economy. By making 'positive statements' data can be gathered and analysed both in terms of the causes and the effects of inflation.

The most significant feature of positive statements is that they are verifiable – for example, stating that the US experienced stagflation in the mid 1970s is positive in that it can be verified – stagflation can be defined and quantified, and the data can be checked to complete the verification. Positive statements are not always ‘true’ but it is the fact that the truthfulness of the statement can be discovered.

Positive economics is, therefore, objective in that it is only concerned with identifying the causes and consequences of an event, or a policy, and not about whether the event or policy is desirable.

Normative statements

In contrast, ‘normative’ statements cannot be verified or falsified. Normative statements concern what ought to happen - what is desirable. For example, to say that unemployment is ‘worse than’ inflation is normative – it is based on a ‘value judgment’ - namely, that unemployment creates more difficulty that inflation. This type of approach is not generally useful in the practice of economics, although it may influence the choice of subject matter to investigate. For example, an economist who believes that unemployment is a bigger 'evil' than inflation may allocate their efforts towards understanding unemployment and building a theory of unemployment, rather than inflation.

What the economist can do it to define the problem (such as inflation), analyse possible causes, build a model of inflation, and consider the effects of inflation on individuals, firms and the whole economic system. At no point in this process will value judgments be made.

Questions

Read each statement and state whether it is positive or normative:

Answer: Positive - the statement can be verified or falsified.

Answer: Normative - the statement cannot be verified or falsified.

Answer: Positive - the statement can be verified or falsified.

Answer: Positive - the statement can be verified or falsified.

Answer: Normative - the statement cannot be verified or falsified.


Economic systems

What are the benefits of a mixed economy?

Economic systems
Equilibrium

How is equilibrium determined?

Equilibrium
Welfare

How does equilibrium create welfare?

Welfare