In simple terms, an economy means the area of production, distribution, and consumption of goods and services. In this area, goods and services are traded in exchange for some monetary value. It is governed by the laws of the government and the culture of the people living there. A very familiar and common example of an economy is the stock market. An economy is further divided into several categories. One of them is the normative and positive economy. Both of these economies are different and have different views. In order to understand the economy as a whole, it is important to under both of them.
Positive vs Normative Economics
The difference between positive and normative economics is in the question both of the put, positive economy is associated with the question of ‘what actually is’ or the present situation whereas normative economy is associates with the question of ‘what ought to be’ or how an ideal economy should be. Therefore positive economy is more based on the present, while a normative economy is based on the future economy. Both of them also differ in terms of types and nature. A positive economy is descriptive and objective as it is based on facts and statistical data, whereas a normative economy is narrow and objective as it is based on the opinions and values of others.
Positive economics is a category or branch of the economy which describes the current situation and problems that exist in the economy. It is based on statistical and theoretical data along with facts. The statements produced in a positive economy are a reliable source of information as they can be tested and proved.
Normative economics is also a branch of economy focussing on what goals of the public ought to be. It aims at the betterment of the economy by suggesting new ideas and policies which are not very reliable as they are based on human opinions and values can be corrupted. It is the subjective economy and is mainly used for providing suitable solutions to the existing problems of the economy.
Comparison Table Between Positive and Normative Economics
|Parameters of Comparison||Positive Economics||Normative Economics|
|Based on||Data and facts||Opinions and values|
|Statements||Can be tested||It cannot be tested|
|Use||Describing issues||Provide solution|
What is Positive Economics?
This type of economy is based on objectivity; it explains the effect and causes behavioral relationships of the variables. The statement of the positive economy can be easily tested by comparing it, and therefore, it can be proved whether they are correct or not. This type of economy defines the problems and difficulties that are there presently in the economy. These problems are concluded on the basis of statistical data and facts which are observed closely.
An example of a positive economy can be an ‘increase in investments can be made by decreasing the interest rate.’ The accuracy of this statement can be tested by comparing it. This is not based on someone’s feelings or opinions; it is mostly based on observation and data. Law of Demand can be a great example of a positive economy.
This economics is mainly studied to understand the problem of the economy so that it can be solved with the best solutions. The main advantage of this is that it is more reliable as the source of information is data and facts.
What is Normative Economics?
This economy is based on objective analysis, which includes beliefs and theoretical situations. It has nothing to do with facts and data of the economy. It explains the solutions to the problems in the economy; it is based on the opinions and suggestions of the other economists, mostly while making the decisions related to the economic problems.
It is not reliable as much as the opinions of others cannot be trusted as it can be highly biased and corruptive in nature. This is also one of the main disadvantages of a normative economy.
The only or main advantage of this economy is it can offer some good suggestions that might help in betting the economic conditions. It shows a picture of how with a particular suggestion or measure, an economic problem can be solved. The statements included in the normative economy can only be trusted up to a level as they cannot prove or tested.
An example of a normative economy can be ‘women should be provided higher school loans than men’ this is something that should be done to improve the education level among women.
Main Differences Between Positive and Normative Economics
- Both of these economics are based on different things, positive economy is more based on tangible things that can be seen and read, such as it is based on data and facts, whereas a normative economy is based on things that can only be heard most, it cannot be touched such as it is based on others opinions and values.
- They are different types of economics. A positive economy is descriptive as it describes the present situation or explains the scenarios of an economy, whereas a normative economy is narrow as it provides ideological judgment of how an economy is supposed to be.
- Statements of economies are recorded to make a conclusion. In the case of a positive economy, these statements can be tested or proved by comparing it with previous statements or with other records, but in the case of a normative economy, these statements cannot be tested as it is merely based on opinions.
- The positive economy is used for describing the main issue of the economy and explaining the cause and effect relationship between variables by stating the facts or happening in the economy, while the normative economy is used for providing the solution to the problems and passing value conclusion.
- A positive economy is objective in nature as it is fact-based where statements are measurable and can be proved, while a normative economy is subjective as it is originated from the feelings of individuals while making decisions.
Therefore, everything should be clear with all the information and differences are given above. Studying the economy is important to understand the various factors that influence economic trade. The economy is the main factor responsible for the money flow in the country and therefore factors that can influence the economy to influence the money of the country. It is not a hidden fact how money is important. Along with money, it also contributes to the development of the country, which is another important aspect of it.
Other categories of the economy are market economy, command economy, and mixed economy. All of them are economic systems.