Ch1 Lesson 11:Ppositive vs normative economics Differences and Examples

What two analysis were developed by economics to separate facts from opinions. Why were opinions given attention.

positive and normative analysis

opinions are best indication of utility

Explain Positive analysis

give us a positive economic statement.

Is it preferred by economists

1.)Assumptions confirmed by facts and observable data, forming the basis of economic models (supply and demand model, Keynesian theory etc)

2.) Example: "Investing in the stock market over the last 4 years was more profitable than investing in savings accounts

3.) yes, (gives them something to act upon/hard to dispute.

Explain Normative analysis and give an example of a Normative Economic Statement

Assertions based on opinions and feelings, not grounded in facts or data.

Example: "The government should fund education for everyone

Positive Analysis

Focuses solely on facts and observable data,

Normative Analysis

Includes opinions and emotions to determine where utility lies.

These statements can guide economic decisions despite lacking factual grounding

Turning Normative into Positive

Adding data to a normative statement to make it fact.

Example: "If the government invests 12% more in education, it will see an 8% growth in GDP and tax revenues for the next 25 years

Textbook Prices normative and positive example

Normative: "There should be lower textbook prices”

Positive: "Lower textbook prices would increase the number of college students”

How can a normative statement be turned into a positive statement?

By consulting TV talking points.

By providing a theoretical hypothesis.

By adding more emotion.

By adding facts and data.

by adding facts and data

Lesson Summary

Positive statements are rooted in fact, while normative statements are based on opinion

Normative analysis is important for understanding_____, and normative statements can be turned into _____ ones with real ____

utility, positive data

Why do many think of normative economics as subjective?

1. It is based on econometric models.

2. It changes with shifts in econometric variables.

3. It can be biased based on the author's interpretation of the data.

4. It is based on opinions.

Based on opinions

Which of the following is a positive statement?

1. The government should provide free education.

2. A 3% reduction in paper spending will save 1 billion dollars a year.

3. Textbook prices are too high.

4. If everyone received free healthcare, the system of governance would make much more sense.

A 3% reduction in paper spending will save 1 billion dollars a year.

Which of the following is a normative statement?

1. A 2% increase in foreign investment is associated with a 0.5% rise in economic growth.

2. Taxes should be higher.

3. Lower taxes would result in a 12% increase in spending.

4. Lower taxes would result in lower revenues.

taxes should be higher

Which of the following does positive economics NOT rely on?

1. Facts

2. Data

3. Opinions

4. Observable phenomena

opinions