Positive and Normative Analysis

What you’ll learn to do: differentiate between positive and normative statements

What choices does society have about how it uses its resources?—”What is possible?” we might ask. Also, what is the right thing to do with the resources we have?—”What should we choose,” we might ask. These are very different questions that lead to very different kinds of responses and statements.

In this section we are going to consider the difference between positive and normative statements and their role in economics. Positive statements are objective. Normative statements are subjective. Good economists are careful to differentiate between the two. In this section, we will learn to differentiate between descriptions of the world as it is and the world as it should be.

The specific things you’ll learn in this section include the following:

  • Define positive and normative statements
  • Provide examples of positive and normative statements

Learning Activities

The learning activities for this section include the following:

  • Video: Positive and Normative Analysis
  • Reading: Positive and Normative Statements
  • Self Check: Positive and Normative Statements

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Economics seeks to describe economic behavior as it actually exists, and it relies on a distinction between positive statements, which describe the world as it is, and normative statements, which describe how the world should be.

Positive Statements

Two kinds of assertions in economics can be subjected to testing. One is the hypothesis. Another testable assertion is a statement of fact, such as “It’s raining,” or “Microsoft is the largest producer of computer operating systems in the world.” Like hypotheses, such assertions can be shown to be correct or incorrect. A statement of fact or a hypothesis is a positive statement.

Normative Statements

Although people often disagree about positive statements, such disagreements can ultimately be resolved through investigation. There is another category of assertions, however, for which investigation can never resolve differences. A normative statement is one that makes a value judgment. Such a judgment is the opinion of the speaker; no one can “prove” that the statement is or is not correct. Here are some examples of normative statements in economics:

  • We ought to do more to help the poor.
  • People in the United States should save more for retirement.
  • Corporate profits are too high.

These statements are based on the values of the person who makes them and can’t be proven false.

Because people have different values, normative statements often provoke disagreement. An economist whose values lead him or her to conclude that we should provide more help for the poor will disagree with one whose values lead to a conclusion that we should not. Because no test exists for these values, these two economists will continue to disagree, unless one persuades the other to adopt a different set of values. Many of the disagreements among economists are based on such differences in values and therefore are unlikely to be resolved.

Self Check: Positive and Normative Statements

Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.

You’ll have more success on the Self Check if you’ve completed the Reading in this section.

Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.