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.

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