About Normative Economics

There are two branches of economics namely positive economics and normative economics. Normative economics is that part of economics where economic theory is useful in predicting economy. At the same time, positive economics deals with the clear and direct relationships about different variables in an economy. Thus, normative economics explains what should happen to the economy or what we desire to happen. Through predicting, what is happening in the economy through which our lives are affected, necessary actions can be taken to prevent the undesired consequences. What economic relationships ought to be is explained by normative economics.

The possible objectives and choices needed are ranked through value judgements. Thus, it is generally subjective. The questions generally asked here are what ought to be and what should be. Example of a normative statement is "for reducing the consumption of tobacco, the taxes should be increased to 100 percent". Thus ‘should’ is the term used in the normative statement. In the case of education, the normative statement example is "for minimization of dropouts basic education should be subsidized continuously by the government". The statements of economic policy makers are thus normative. However, a basic and clear understanding on the links between economic variables is needed for the policy makers to make normative statements. Thus, there is the need for making the foundations of normative statements based on a clear and sound positive analysis. Thus, there exists a great responsibility to the economic policy makers to make interventions, which are deliberate and can alter the future cause of actions. Thus, the distinction between positive economics and normative economics is that while positive economics is descriptive, normative economics is prescriptive. The former is mathematical while the later is moral. Normative statements cannot be tested or proved while the positive statements can be directly tested or proved.