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, because 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 are some of the limitations and drawbacks of economics as a field?

    Find out why the field of economics is full of controversy. Policy decisions, political campaigns and personal finances are ... Read Answer >>
  2. 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 >>
  3. 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 >>
  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 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 >>
  6. 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 >>
Related Articles
  1. 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.
  2. Investing

    Navigating Government And Nonprofit Financial Statements

    Learn how to trace where your tax dollars and charitable donations are going.
  3. Insights

    Countries With The Highest Healthcare Spending

    Spending big doesn't necessarily mean it's the best. We take a look at the big spenders in healthcare.
  4. 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?
  5. Investing

    Why Financial Statements Are Harder to Read Than Ever Before

    Understand four major reasons that financial statements published in 2016 are more complicated and difficult to read than they were in the past.
  6. Insights

    How Big Data Has Changed Healthcare

    Like many other industries, healthcare has adapted to data analytics not only for its financial returns but also improving patient’s quality of life.
  7. Investing

    Sneaky Subsidiary Tricks Can Cloud Financials

    Use consolidated financial statements to uncover a parent company's true performance.
  8. Investing

    Why Companies Welcome an Unqualified Opinion

    An unqualified opinion is an independent auditor’s opinion that a company’s financial statements are fair and accurate.
RELATED TERMS
  1. Experimental Economics

    A branch of economics that focuses on individual behavior in ...
  2. Account Statement

    A periodic summary of account activity with a beginning date ...
  3. Income Statement

    A financial statement that measures a company's financial performance ...
  4. Bank Statement

    A record, usually sent to the account holder once per month, ...
  5. Combined Statement

    Also known as a descriptive or consolidated statement, combined ...
  6. Common Size Income Statement

    An income statement in which each account is expressed as a percentage ...
Hot Definitions
  1. Trickle-Down Theory

    An economic idea which states that decreasing marginal and capital gains tax rates - especially for corporations, investors ...
  2. Derivative

    A security with a price that is dependent upon or derived from one or more underlying assets.
  3. Fiduciary

    A fiduciary is a person who acts on behalf of another person, or persons to manage assets.
  4. Sharpe Ratio

    The Sharpe Ratio is a measure for calculating risk-adjusted return, and this ratio has become the industry standard for such ...
  5. Death Taxes

    Taxes imposed by the federal and/or state government on someone's estate upon their death. These taxes are levied on the ...
  6. Retained Earnings

    Retained earnings is the percentage of net earnings not paid out as dividends, but retained by the company to be reinvested ...
Trading Center