Friday, 1 January 2010

Positive and Normative Economics

As an economist it is vital to be able to distinguish between positive analysis and normative analysis.

For the exam you will be required to tell if a statement is positive or normative.

So here is how it goes...

Positive economics is facts and figures. They are statements which can be verified and tested.For example if I tell you that Burberry shares have gone up 16.2%, this is a positive statement because you can go out and test it.

So the definition for positive statements you need to know is: it is a statement that is testable or verifiable. It is a fact or assertion.
N.B - Remember in the example to give an example if you get a chance.

On the other hand, normative analysis is based on opinions - what in economics we call "value judgements". An easy way to recognise them is to look for words like 'ought' and 'should'. For example, if I say that the company Superdry should not be in the FTSE 250 then this is a normative statement because it contains the word "should" and it is my personal opinion. It cannot be tested or verified.

An example of a normative statement which does not contain should or ought is : "Some critics are calling for government intervention as rents are becoming unfairly high" - this is in fact taken from a past exam marks scheme. The reason why this is normative is because of the adjective 'unfairly' what is unfair to one person is not to another. The fact that someone can disagree with the statement is another easy way to tell the if the statement is normative.

For the exam this definition you need to know is: It is a value judgement which cannot be tested or verified.


This is a great quiz to test your knowledge for the first section of economics including positive and normative analysis:

Need more help with positive and normative economics?
Check this video out below (not done by me!)


  1. Which of the following is a positive economic statement?

    a)People should avoid drinking sugared coffee.
    b)Coffee drinkers are drug addicts since they need caffeine.
    c)An increase in the price of coffee leads to less coffee being purchased.
    d)Coffee always makes people jittery and less productive.

    why is b and d incorrect

  2. C is the correct answer as we can verify this by measuring what happens to the quantity sold of coffee when price increases.

    A is wrong as it is clear it is an opinion - it contains the word 'should'

    B is wrong because you can't verify that coffee drinkers are drug addicts because coffee isn't a drug and to make a claim like that is an opinion as it cannot be tested or it is not a fact.

    D is wrong because even after verifying it is wrong to say that coffee 'always' has this affect because clearly from evidence we can see that coffee can have other effects making this an opinion - subjective statement not a fact!

    Hope this helps!

  3. Your site is just too good! So helpful! Great for taking notes on the subject after the lesson!