Loading the player...
A:

Positive economics is objective and fact based, while normative economics is subjective and value based. Positive economic statements do not have to be correct, but they must be able to be tested and proved or disproved. Normative economic statements are opinion based, so they cannot be proved or disproved.

While this distinction seems simple, it is not always easy to differentiate between the positive and the normative. Many widely-accepted statements that people hold as fact are actually value based.

For example, the statement, "government should provide basic healthcare to all citizens" is a normative economic statement. There is no way to prove whether government "should" provide healthcare; this statement is based on opinions about the role of government in individuals' lives, the importance of healthcare, and who should pay for it.

The statement, "government-provided healthcare increases public expenditures" is a positive economic statement, as it can be proved or disproved by examining healthcare spending data in countries like Canada and Britain, where the government provides healthcare.

Disagreements over public policies typically revolve around normative economic statements, and the disagreements persist because neither side can prove that it is correct or that its opponent is incorrect. A clear understanding of the difference between positive and normative economics should lead to better policy making if policies are made based on facts (positive economics), not opinions (normative economics). Nonetheless, numerous policies on issues ranging from international trade to welfare are at least partially based on normative economics.

RELATED FAQS
  1. What is the difference between a compiled and a certified financial statement?

    All publicly-traded companies are required to provide financial statements, including a balance sheet, cash flow statement ... Read Answer >>
  2. Which financial accounting statement contains information on a company's net sales?

    Find out which accounting statement contains information on a company's net sales as well as other key statements analysts ... Read Answer >>
  3. What impact does economics have on government policy?

    Learn about the impact of economic conditions on government policy and understand how governments engineer economic conditions ... Read Answer >>
  4. How are the three major financial statements related to each other?

    Learn why investors analyze a company's financial statements, and how the income statement, balance sheet and cash flow statement ... Read Answer >>
  5. What is the difference between a cash flow statement and an income statement?

    Learn how a cash flow statement measures the sources and uses of a company's cash, while an income statement measures a company's ... Read Answer >>
  6. How is correlation used differently in finance and economics?

    Take a look at the similarities and differences between how statistical correlation is applied in economics as opposed to ... Read Answer >>
Related Articles
  1. Insights

    Positive And Normative Economics

    Learn the difference between these two declarative statements and what they mean in the world of economics and finance.
  2. Investing

    12 Things You Need To Know About Financial Statements

    Discover how to keep score of companies to increase your chances of choosing a winner.
  3. Investing

    What Is The Difference Between A Cash Flow Statement And An Income Statement?

    A firm’s cash flow statement measures the sources and uses of its cash. The income statement shows how it is financially performing.
  4. Investing

    Stay the Course With an Investment Policy Statement

    Keep your emotions out of your investment portfolio with an investment policy statement.
  5. Financial Advisor

    Healthcare Funds: Give Your Portfolio A Booster Shot

    Find out how healthcare investments can become the strongest asset in your portfolio.
  6. Investing

    Explaining Financial Statement Analysis

    Financial statement analysis is the process of reviewing a company’s statements to gain an understanding of its financial health.
  7. Financial Advisor

    Helping Clients Manage Future Healthcare Costs

    As healthcare costs continue to skyrocket, here's how financial advisors should be helping clients to manage the costs.
  8. Insurance

    The Drawbacks Of Single-Payer Healthcare

    Universal healthcare has many benefits, but if there's no such thing as a free lunch, then in what ways are single-pay citizens paying for their "free" healthcare?
  9. Investing

    A Prescription for Defense With Healthcare ETFs (IYH)

    Healthcare is a defensive sector, but it is not expensive compared to other defensive groups.
  10. Investing

    What are Financial Statement Assertions?

    Understand financial statement assertions and what they mean in accounting. For investors, it is important that assertions be accurate.
RELATED TERMS
  1. Normative Economics

    A perspective on economics that incorporates subjectivity within ...
  2. Positive Economics

    The study of economics based on objective analysis. Most economists ...
  3. Financial Statement Analysis

    The process of reviewing and evaluating a company's financial ...
  4. Experimental Economics

    A branch of economics that focuses on individual behavior in ...
  5. Income Statement

    A financial statement that measures a company's financial performance ...
  6. Account Statement

    A periodic summary of account activity with a beginning date ...
Hot Definitions
  1. Hedge Fund

    An aggressively managed portfolio of investments that uses leveraged, long, short and derivative positions with the goal ...
  2. Financial Statements

    Records that outline the financial activities of a business, an individual or any other entity. Financial statements are ...
  3. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  4. Money Market

    A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. ...
  5. Block (Bitcoin Block)

    Blocks are files where data pertaining to the Bitcoin network is permanently recorded.
  6. Fintech

    Fintech is a portmanteau of financial technology that describes an emerging financial services sector in the 21st century.
Trading Center