Essay Plans

Outline the differences between POSITIVE and NORMATIVE economics. How can positive economics be used in normative analysis?

SYNOPSIS:

POINTS:

Beware of the assumption that every sentence with should in is therefore normative. If the money supply is controlled, inflation should come down is a positive statement, not normative.
Positive statements relate to sentences such as "If C THEN D" - this is empirically testable.
Positive economics is thus value free.
Normative economics is not value-free i.e. it contains - either implicitly or explicitly - someone's VALUES. Thus a personal opinion is often a value-judgement and is therefore normative. As stated in (1) however, the probably outcome of an economic event may be an opinion without being a value-judgement.
Policy decisions are often normative. Tony Blair wishes (we assume) to make all of us better off. She decides that this can be achieved by cutting taxes and/or dropping interest rates. The aim to make us better off is normative. Positive economics tells us that this method may not be the one most likely to succeed (based on current events). Even the definition of success is a normative judgement - is it measured on percentages or local percentages, or according to income levels. If the rich get richer and the poor get poorer as a result of tax cuts BUT the rich make up the majority does that make a policy a success.
Finally, you must be very careful to keep politics out of economics!!!