Positive and Normative Economics

The study of economics involves both positive and normative aspects in terms of understanding the events taking place around us, taking decisions, prescribing rules and regulations and implementing policies to solve economic problems.

Positive economics talks 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. Normative economics gives value judgments about things and tells us to "What should have happened".

For example, consider the following statements:

  1. India’s population have crossed 125 crore mark. India is the second largest populated country in the world.
  2. India should not allow its population to grow so fast. It must control its population.
  3. Workers will work hard if they are given more wages.
  4. Factories should increase the wage rate of workers to provide justice for hard work.

Statement (i) describes a phenomenon which is happening. This is a positive statement. Statement (ii) gives a value judgment on India’s population. This is a normative statement.

Statement (iii) is a positive statement. It tells about a certain fact. Statement (iv) is normative in nature because it tells about the right thing which if takes place will do good to society.

Economic decision making by individuals or government or business firms involves both positive and normative aspects of the things. For example as given by statements (i) and (ii) because India’s population is growing fast and posing problems, the government is doing its best to control the population growth through effective family planning and other measures. Similarly, based on statement (iii) and (iv), government has implemented minimum wage laws so that workers get justice.