Positive and Normative Economics: Definitions and Differences
Positive and Normative Economics is rightly known as the two arms of Economics. Positive economics deals with various economic phenomena, while normative economics focuses on what economics should be, this branch of economics talks about the value of the company’s fairness. In lucid language, positive economics answers the ‘what’ factor, whereas normative economics mandates the ‘should be’ or ‘ought to be’ section of economics.
Well, this was only a preface about the entire discussion. We will look forward to discussing ‘What is Positive and Normative Economics?’, we will take up the point of conflict between these two studies and also update ourselves with other knowledgeable facts on the same topic.
What is Positive Economics?
Positive economics is the stream of economics that has an objective approach, relied on facts. 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.
Here, the study of economics is more objective and focuses more on facts. Moreover, the statements are precise, descriptive, and measurable. Such reports can be quantified with respect to noticeable evidence and historical references.
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.
What is Normative Economics?
Normative economics deals with prospective or theoretical situations. This division of economics has a more subjective approach. It focuses on the ideological, perspective-based, opinion-oriented statements towards economic activities. The aim here is to summarise the desirability quotient among individuals and quote factors like ‘what can happen’ or ‘what ought to be’.
Normative economics statements are subjective and rely heavily on values originating from an individual opinion. These statements are often very rigid and perceptive. Therefore, they are considered political or authoritarian.
A normative economics example is, “The government should make available fundamental healthcare to every citizen”. You can understand that this statement is based on personal perspective and satisfies the need for ‘should be’ or ‘ought to be’.
Difference Between Positive and Normative Economics
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. Now, let us delve into it right away.
Meaning
Positive economics means more focus on data, facts, and figures rather than personal perspectives. The statements here are to the point and supported by relevant information. On the other hand, normative economics focuses more on personal perspectives and opinions rather than facts and figures. Here the statements are based on an individual’s point of view, and ample data is always available to support such claims.
Perspective
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.
Contrarily, normative economics focuses on presenting statements that may or may not be possible in the future. Moreover, in some cases, such statements do not have any credible data to back them up.
Function
Their functions can distinguish between positive and normative economics. Positive economics describes the cause and outcome of the relationship among variables. On the other hand, normative economics provides value judgment.
Area of Study
Positive economics is the study of ‘what is’; whereas normative economics describes ‘what should be’. One branch relies on a factual approach supported by data. Contrarily, normative economics relies more on personal opinions rather than actual data.
Testing
Every statement of positive economics can be tested scientifically and either proven or disregarded. However, normative economics statements cannot be tested scientifically. It entirely depends on the belief of an individual.
Economical Clarification
Positive economics provides a more scientific and calculated clarification on an economic issue. However, normative economics also provides such solutions but ones that are based on personal values.
Case in Points of Positive Economics – Examples
Monopolies have proved to be inefficient
The desired rate of return on gambling stocks are higher compared to others
The relationship between wealth and demand is inverse in the case of inferior goods
House prices reduce once the interest rate on loans get higher
Car scrappage schemes can result in a fall in the prices of second-hand cars
Case in Points of Normatics Economics – Examples
The government should implement strict wealth tax laws to decrease the uneven distribution of wealth
No individuals should be entitled to inheritances as it belongs to society
Import duties should be increased on goods coming from nations with humble human rights record
Investors ought to be more socially responsible and stop investing in vice stocks
Developing countries should only accept democracy when their entire population is educated and liberated
What is the Importance of Positive and Normative Type Economics?
Even though normative economics is a subjective study, it acts as a base or a platform for out-of-the-box thinking. These concepts will provide a basic foundation for the innovative ideas that will ignite to reform an economy.
However, all the decisions cannot rely on them altogether. On the other hand, Positive economics is needed to provide an objective approach. Positive economics is focused on the facts and analyses of the effects of such decisions in society and thereby it helps by providing a statement that comprises the necessary information to make a sound economic decision.
Normative economics is thus useful in creating and generating newer ideas from another or different perspectives, also note it cannot be the only basis for making decisions on important economic issues, and here the positive economics come into action thus complementing each other.
So, Positive economic theory can help the economic policymakers to implement the normative value judgments. Like - it can describe how the government is in power to impact inflation by printing more money or restructuring the banking reforms, this economics can support that statement with strong facts and analysis with relationships between inflation and growth in the money supply of an economy.
A clear understanding of the difference between positive and normative economics is vital for commerce students. Apart from this, to learn more about other chapters of economics, students can visit the official website of Vedantu.
FAQs on Positive vs. Normative Economics
1. What is the main difference between positive and normative economics for a Class 11 student?
The main difference lies in their purpose and nature. Positive economics describes and explains economic phenomena as they are, based on facts and data. It answers questions like “what is?” or “what will be?”. In contrast, normative economics makes recommendations or value judgments about what the economy should be like. It answers questions like “what ought to be?”. For a student, the key is to remember that positive statements are testable, while normative statements are subjective opinions.
2. What are the key characteristics of a positive economic statement?
A positive economic statement has the following key characteristics:
Objective: It is based on facts and data, not personal beliefs.
Descriptive: It describes a cause-and-effect relationship or a factual situation.
Verifiable: It can be tested, proven, or disproven with evidence and statistical analysis.
Example: “An increase in the repo rate by the RBI often leads to higher lending rates by commercial banks.” This is a testable statement.
3. How can you identify a normative economic statement?
You can typically identify a normative economic statement by its language and nature. Look for these signs:
Subjective Language: It involves personal opinions, values, and ethical considerations.
Prescriptive Tone: It uses words like “should,” “ought to,” “fair,” or “must” to suggest a course of action.
Non-Testable: It cannot be proven or disproven with data alone, as it is based on a value judgment.
Example: “The government should provide subsidies on essential goods to help the poor.” This is a policy recommendation based on a value judgment about fairness.
4. Can you give a real-world example from India to explain the difference?
Certainly. Consider the Goods and Services Tax (GST) in India.
A positive statement would be: “The implementation of GST has led to an increase in the number of indirect taxpayers in India.” This is a factual claim that can be verified by analysing government data.
A normative statement would be: “The government should lower the GST rate on healthcare services to make them more affordable.” This is a subjective opinion or a policy suggestion based on the value of public health.
5. Why is it important for economists to distinguish between positive and normative economics?
Distinguishing between the two is crucial for clear and effective economic analysis and policymaking. Positive economics provides the objective, factual foundation for understanding how the economy works. Policymakers use this factual basis to predict the likely outcomes of different policies. Normative economics comes into play when deciding which policy to choose based on societal goals and values. Separating them ensures that policy debates are based on objective facts, even when the final decisions are based on subjective goals.
6. How can a positive economic fact support a normative economic goal?
Positive economics provides the evidence needed to effectively pursue a normative goal. For instance, suppose a government has a normative goal: “We should reduce unemployment.” To achieve this, economists use positive analysis to evaluate different options. They might study data to conclude that “a 10% government investment in infrastructure projects can create 50,000 new jobs.” This positive, verifiable fact helps the government make an informed decision on how to achieve its normative objective.
7. In CBSE Class 11 exams, what kind of questions can be expected from the topic 'Positive and Normative Economics'?
For the CBSE Class 11 Economics exam (as per the 2025-26 syllabus), you can typically expect questions that test your conceptual clarity. Common formats include:
Identification Questions: You will be given a list of economic statements and asked to identify which are positive and which are normative.
Reasoning Questions: After identifying a statement, you may be asked to provide a reason for your classification.
Difference Questions: A direct question asking you to differentiate between positive and normative economics, often for 3 or 4 marks, requiring you to write on the basis of meaning, verifiability, and purpose.
