Positive and Normative Analysis
Positive analysis uses what is occurring in an economy as a basis for any statements regarding the future. A positive economic statement is based on fact and can have its accuracy tested. In contrast, a normative economic statement is subjective and cannot be proven or disproven. The statement “Minimum wages create unemployment among young and unskilled workers.” is a normative analysis. This theory could not be tested because every individual would have a different opinion regarding reasons for unemployment within the groups being discussed. Also, testing data from two different groups to see if their reasons for unemployment are the same would be extremely difficult to conclude with accuracy. “If the price of a product in a market decreases, with other things being equal, the quantity demanded will increase.” is an example of positive analysis. This theory could be tested using any product on the market and its accuracy would be proven or disproven easily. If you sold “Acme” hand soap at a discount of $0.50 a bottle, and all other hand soaps remained the same price, it would be reasonable to assume that “Acme” hand soap would sell more frequently.
Another example of normative economics is “A little bit of inflation is worse for society than a little bit of unemployment.” because opinions would be varied on this topic. Personal beliefs would keep all people from agreeing on which is actually worse for society as a whole. Differences in social groups, income, race, religion, etc., would lead to changes in perspectives. “Income distribution in the United States is not equitable.” would be considered a positive analysis. Someone could easily collect payment data on one job title alone to determine if this was true or false. Another instance of positive economics is “Health care subsidies will increase the consumption of health care.” This theory could be tested by seeing what type of impact health care subsidies would have on the health care industry over a certain period of time. Finally, the belief that “If unemployment benefits were reduced, the country would be better off.” is another case of positive analysis. The accuracy of this statement could be tested by reducing unemployment benefits and studying the effects that such an act would have on the country as a whole.
Positive analysis, or the science of “what is”, is the primary focus of most economists because it is frequently used to test economic theories. Normative analysis applies judgment and beliefs to thoughts rather than focusing on an explanation of things. It is concerned with what the goals of the public “should be”. A combination of both is commonly used since positive economics will state an economic issue for a value-based solution provided by normative economics.