Positive and Normative Economics What is the difference?

The rate of inflation should not be more than 6 per cent. He was a companion of distinguished economists like Manmohan Singh (Ex-Prime Minister of India and a veteran economist answerable for liberalizing the Indian financial system), K. His ascendancy to the prime ministership was politically vital in that he was the second holder of this office from a non-Hindi-talking area and 1st belonging to the southern a part of India. He led an necessary administration, overseeing a major financial transformation and several other residence incidents affecting national safety of India.

Positive economics allows us to use historical data to regulate the relationship between interest rates and consumer behavior. To study the factors influencing the increase in government spending will reduce the unemployment rate. For example, macroeconomics will consider the contribution of Gross Domestic Product and Gross National product.

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Normative economics gives value judgments about things and tells us to “What should have happened”. Main tools of microeconomics are demand and supply of the particular commodity/ factor whereas tools of macroeconomics are aggregate demand and aggregate supply of the whole economy. If we consider economics as a positive science then it means that the term economics can be only used for describing as positive science only describes the things. Positive science only explains things as they happen in reality. It generally explains what is, what was, and what will be.

Experts are of the view that coal shortage can lead to a possible electricity crisis and there is a need to scale up supplies as 26 per cent of the normative level of coal at non-pithead thermal power plants is not a good sign. Non-pithead thermal power plants are situated at a distance from coal mines and stocks at these plants assume significance. As per reports of the International Hydropower Association , the US has developed more than 80 per cent of its hydropower potential and the EU has developed more than 70 per cent of its hydropower potential, he told the House.

What do you understand by normative economic analysis?

Economists like Marshall Pigou etc. regard economics as a normative science. Positive economics describes and explains various economic phenomena or the “what is” scenario. While positive economics is based on fact and cannot be approved or disapproved, normative economics is based on value judgments. Most public policy is based on a combination of both positive and normative economics. Positive economics was now said to be about facts and normative economics about values. Normative economics is an outlook on economics that contemplates normative or ideologically dictatorial, discernments toward economic enhancement, statements, funding projects and framework.

• Positive economics relies on the facts and factual data.
• It deals with the present economy, like whatever presently happening in the country is a part of positive economics.
• An increase in the price of a good leads to a decrease in its demand; thus, government should restrain price increases.
• These concepts will provide a basic foundation for the innovative ideas that will ignite to reform an economy.
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Usually, the benefits of an economy depend on person to person and from function to function. Both economies have their own pros and cons and people should consider them before applications. Normative economics suffers from the problem of non-replicability. Normative economics is better in dealing with big purchases. Normative economics is important in establishing and generating new ideas. Positive economics doesn’t have a one-size-fits-all approach.

Normative economics seeks to promote social welfare by analyzing the impact of economic policies on society. Ethical considerations are vital in determining whether economic policies promote social welfare or not. Normative economics is used to analyze the distribution of resources among individuals and society. Ethical considerations are crucial in determining whether the distribution of resources is just and equitable. Normative economics helps in evaluating the merits of economic policies by assessing whether they are just and fair. Ethical considerations are essential in determining the impact of economic policies on society.

Economical Clarification

“In a hypothetical market of mobile phones, the brand AWAAZ was leading the market share. Its nearest competitor VAARTA suddenly changed its strategy by bringing in a new model of the mobile phone at a relatively lesser price. In response, AWAAZ too slashed its price .” Based on the above information, identify the form of the market represented and discuss any one a feature of the market. Or Discuss the primary reason for ‘indeterminateness of demand curve’ under the oligopoly form of market. How the growth of the money supply influences inflation, without including the suggested policies.

Hence, economic value is reflected in terms of increased output and income. We all know that the term economics is defined as a social science. There has been a discussion about this term whether it is called a normative science or a positive science.

It concentrates on the description, quantification, and clarification of economic developments, prospects, and allied matters. This subdivision of economics relies on objective data analysis and relevant facts and figures. Therefore, it tries to establish a cause-and-effect relationship or behavioral relationship that can help determine as well as test the advancement of economic theories. Microeconomics analyses how equilibrium of a consumer, a producer or an industry is attained but macroeconomics is concerned with determination of economy’s equilibrium level of income, employment and output. Central problems of microeconomics is price determination and allocation of resources but that of macroeconomics is determination of level of income and employment. Normative economics manifests ideological judgments about what could be the end result in an economic pursuit if public policy modifications are made.

Positive economics can be verified, while normative economics can’t be verified and detected. Positive economics is a measurable perspective and normative economics is a precautional perspective. Behavioral economics is also an example of normative economics. The correct answer for the given question is option D) The governments should spend more to aid the poor.

It is especially related to efficiency in production and exchanges. Economics uses models and assumptions to understand the global economy and create incentives. However, all the decisions cannot rely on them altogether. On the other hand, Positive economics is needed to provide an objective approach.

An example of normative economics in the price of a good leads to a decrease in its demand; thus, government should restrain price increases. For example, the cause and effect relationship between price and demand of a commodity can be explained by the law of demand. CAs, experts and businesses can get GST ready with ClearTax GST software & certification course. Our GST Software helps CAs, tax experts & business to manage returns & invoices in an easy manner. Our Goods & Services Tax course includes tutorial videos, guides and expert assistance to help you in mastering Goods and Services Tax.

It deals with the facts and behavioral relationships of cause and effects. It also includes the development and testing of economic theories. Different economists have defined economics in different words. Here are some famous definitions of the word economics. Economics is defined as a branch of social science that deals with the production, consumption, and distribution of goods and services.

Microeconomics deals with determination of prices of individual goods and individual factors of production but macroeconomics deals with general price level and nation’s incomes. Positive economics, as such, prohibits judgements on economic value. For example, a positive economic theory might explain how the growth of the money supply influences inflation, but it does not guide what policy should be pursued. Positive economics is based on objective data, while normative economics is based on facts and logic. Positive economics talks about various economic phenomena.

Positive economics is the branch of economics concerned with describing and explaining economic phenomena. It focuses on facts and behavioural relationships of cause and effect and includes the development and testing of economic theories. Normative economics helps in determining the role of government in the economy. Ethical considerations are important in deciding whether the government should intervene in the economy and to what extent.

Positive economics is not a good decision when it comes to big purchases. Positive and Normative Economics do have some underlying differences between them. We will analyze the differences between them in terms of meaning, perspective, function, area of study, testing, economical clarification.

The perspective of these two concepts is a significant point of difference between them. Positive economics is objective, whereas normative economics is subjective. The focus of positive economics is on presenting relevant and more focused statements backed by actual data. Positive economics is objective and fact based, while normative economics is subjective and value based. Positive economic statements must be able to be tested and proved or disproved.

You can understand that this statement is based on personal perspective and satisfies the need for ‘should be’ or ‘ought to be’. A positive economics example is a statement, “Government-funded healthcare surges public expenditures.” This statement is based on facts and has a considerable value judgment involved in it. Therefore, its credibility can be proven or dis-proven via a study of the government’s involvement in healthcare. Positive economics is the stream of economics that has an objective approach, relied on facts.

The no space to value and judgments in positive economics, allows the policy makers to frame required measures to tackle any economic conditions. Macroeconomics doesn’t take individual decisions into consideration. It emphases on the combined changes in the economy such as interest rates, unemployment, and growth rate. Positive economicstalks about “What is” where as normative economics talks about “What ought to be” or “what should be”. Positive economics talks about the things happening or might happen in the economic world.

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