INTERNAL ASSESSMENT ON

POSITIVE VERSUS NORMATIVE ECONOMICS

Mishal Kumar Sultania (20BSP1297)
Payal Mittal (20BSP1580)
Shruti Dasgupta (20BSP2329)

Introduction

Economics is the social science that studies to acquire and gain economic operation.
Awareness of the processes that control output, manufacturing, and distribution. In an
economy, the consumption of goods and services. 
"The term economics originates from Ancient Greek, hence "house rules (hold for good
management). The earlier name for the subject was the 'political economy.' Still,
"Economics" was proposed by economists in the late 19th century as a shorter term for
"economic science" to define itself outside of political science and other social sciences as a
separate discipline. Economics focuses on economic agents' activities and interactions and
how economies work. Microeconomics examines the behaviour of essential elements in the
economy, including individual agents and markets, their businesses, and the outcomes of
interactions. Respective agents may include, for example, households, firms, buyers, and
sellers. Macroeconomics analyses the economy as a whole (meaning gross production,
consumption, savings, and investment) and the issues are affecting it, including resource
unemployment (labour, capital, and land), inflation, economic development and public
policies (monetary, fiscal, and other systems) that resolve these issues.

Positive Economics

Positive economics is a social science that prohibits value judgments, beliefs, or moral and
ethical arguments based on factual analysis and cause and effect. 
Positive economics specifies what is what was, or what is likely to be in a 
the way that can be checked for accuracy, unlike normative economics, subjectively
underlines what should be. The argument "decreasing interest rates would allow consumers to
spend" may, for instance, be considered optimistic. Simultaneously, "the government should
regulate the cost of food to help feed the poor" is a normative economic statement. The
former is a neutral statement based on the fact that it can be proven with observable evidence,
while the latter is a subjective statement presented as an emotional appeal. The reason why an
economic situation has developed is a specific focus of positive economics. Suppose a
commodity's price is proven to have suddenly decreased or increased significantly in a few
months or a year. In that case, the optimistic economist will attempt to determine the factors
that affected the price.
In contrast, a normative economist may suggest what policy should be enacted to reverse the
price increase or decrease. Optimistic economists also help determine the likely consequences
of a new economic system or a policy change, such as increased taxes. One of the most
common tools used for such an assessment is called cost-benefit analysis. Cost-benefit
analysis compares the total costs of an undertaking with its anticipated benefits. Additional
related assessment tools include economic impact analysis, fiscal impact analysis, and cost-
effectiveness analysis.
Normative Economics

Normative economics is an approach to analysing economic events and factors that allow
room for some degree of personal interpretation. This contrasts with positive economics,
where the rule of thumb focuses on hard facts with little to no subjective opinion included in
the presentation. The format of normative statements regarding economic events is often
couched in rhetoric that suggests possible future events resulting from current events, based
on individual speculation and interpretation of the available data. Essentially, normative
economics involves assessing current data and deciding how things should progress for the
desired Emerging result. Subjective claims should not have to presume that in the future, the
status quo will be retained. By following one or more particular courses of action, and the
economic situation is very different from the present one. Sometimes, statements of this kind
include clear directives that have at least a chance of contributing to the desired result if
followed. The normative economics method will consist of making a declaration of
something that the speaker believes should occur in the future. For example, suppose a
politician refers to current data regarding consumer spending within a given nation and states
that the government should reduce taxes by a certain percentage to provide more disposable
income to taxpayers. In that case, that statement is based on projections of what could happen
rather than what is happening. By contrast, positive or objective information would involve
noting that while tax cuts might be helpful, current data indicate that government agencies
would have to reduce expenses before a tax cut would become feasible. The difference is that
the potential result of making a change is the subject of one argument, while the other has to
do with what must happen before a change can be made.

Objectives

The present study aimed with the following objectives:

1. To know about Positive Economics and its statement in Economics

2. To know about Normative Economics and its report in Economics
3. To differentiate the Positive and Normative Economics
4. To study Positive and Normative Economics analysis

Positive and normative methodology 

In twentieth-century economics, "The methodology of positive economics" remains the most

cited, influential, and controversial methodological literature piece. After its manifestation,
As a scientific discipline, the essay influenced the picture of economics, inside and outside
academia. Simultaneously, there has been a continuous debate over the right interpretation
and normative assessment of the article. Perceptions have been sharply divided, with some
viewing economics as a scientific success.

Positive and Normative Analysis

Economics uses two types of analysis: positive and normative. The complimentary study
describes the world the way it is. It is based on facts. The normative analysis describes the
world the way it should be. It is based upon opinions. Economists use both types of research
when examining social issues and advising policymakers.

A complimentary economic growth analysis includes calculating the value of the goods and
services produced and available to satisfy our needs and wants. The cost of output, if
measured accurately, is a fact. The complimentary analysis also includes ways to increase
economic growth, such as increased specialization and trade or investment in physical capital,
education, and technology. Simple economic models, such as those discussed in Chapter 3,
illustrate these facts. A normative analysis of economic growth might suggest that taxes
should be increased to provide additional public school funding. Economists show that
increases in education typically boost productivity. Skilled workers produce more output than
unskilled workers. This is a complimentary analysis because this is factual knowledge.
However, individuals vary in their views on how to create a better-educated workforce. To
provide more support for public schools, the normative analysis might imply that property
taxes should be increased. 
This is a view of how education should be changed. Property taxes are not the only way to
raise the required funds if a society wishes to commit more money to the public school
system. Others might favour a particular tax system. An alternative normative study may
disagree with the assumption that increased public school investment would inevitably boost
education standards. This is the basis behind the policies of President George W. Bush that
require students to pass skills before being advanced to the next school grade level. Since this
part of the analysis is based on opinions about the best way to improve education, it is
normative.

A similar distinction between positive and normative analysis can be made when discussing
low unemployment's macroeconomic policy goal. Economists at the U.S. Bureau of Labour
Statistics (BLS)regularly report on the U.S. labour market condition. Their calculations of the
number of unemployed and the percentage of the labour force that want a job but are unable
to find one are examples of complementary economic analysis since they are based on facts.
Normative analysis might suggest that the current unemployment rate is too high and that the
government should reduce unemployment. Whether the current unemployment rate is too
high is a matter of opinion.
Similarly, a complimentary analysis of inflation includes calculating the rate at which prices
are rising. In contrast, the normative analysis might suggest that the inflation rate is too high,
and the government should correct it. Complimentary monetary policy analysis includes
discussing how the Federal Reserve System affects the economy by influencing the number
of money banks to create when they issue loans. Normative analysis might suggest the Fed
should do more to stimulate overall spending in the economy. Complimentary fiscal policy
analysis includes discussing the various taxes used to generate revenue for the government
and how money is spent to provide goods and services for the public. Normative analysis
might suggest that the current tax system is inefficient or unfair or proclaim that the
government spends too much money on specific programs and too little on others.

Politicians also use economists as hired weapons. Instead of asking economists to provide an
unbiased analysis of a policy issue, they tell economists their stance on a social problem and
ask economists to provide them research help instead. This also results in a partial analysis of
the media, with unfavourable factors overlooked or downplayed. Economists may also be
employed by politicians to express views as if they were evidence. Thus it is essential to be
able to distinguish between positive and normative analysis when evaluating economic
arguments.
Summary in Points
 Positive economics deals with what is, while normative economics deals with what
should be.
 Positive economics deals with facts, while normative economics deals with opinions
on a desirable economy.

Conclusion

Each of us must have an understanding of how the economy works. It will allow us to see if
our policymakers are making the right economic decisions for us. We should be able to know
how our behaviour and spending habits affect the economy. Therefore, understanding what
economics is and learning about its various characteristics and dimensions is essential.
Economics is a social science that is concerned with Creating, selling, and using goods and
services.
It aims to illustrate how economies operate and the relationship between its various agents.
Positive economic claims are often based on what is currently going on in the economy, and,
depending on the evidence presented, they may either be approved or dismissed. Normative
financial statements cannot be tested and proved right or wrong through direct experience or
observation because they are based on an individual's opinion. Although these two are
distinct from each other, they complement each other because one must first know about
economic facts before passing judgment or arguing whether a monetary policy is good or
bad.

References
 Andrew Caplin and Andrew Schotte, ed. (2008). The Foundations of Positive and
Normative Economics
 Milton Friedman (1953, 1966). "The Methodology of Positive Economics
 John Neville Keynes (1891 The Scope and Method of Political Economy