Normative Economics

Normative economics explains the events or facts, as they ‘ought to be’. It explains the questions ‘what should be’. Normative economics focuses on personal value judgment about what is good or bad. According to David Begg and others, “normative economics offers prescriptions or recommendations based on personal value judgment”.

In contrast, normative economics looks at the outcomes of economic behavior and asks whether they are good or bad and whether they can be made better. It involves judgments and prescriptions for courses of action. Should the government subsidize or regulate the cost of higher education? Should medical benefits to the elderly under medicine be available only to those with incomes below some threshold? For example, if industrialists pay low wages to workers positive economics simply states that the motive is to reduce cost of production and does not proceed further. But, normative economics gives judgment as to whether or not payment of low wage is desirable and justifiable.

Of course, most normative questions involve positive questions. To know whether the government should take a particular action we must know first, if it can and second what the consequences are likely to be.

Some claim that positive, value free economic analysis is impossible. They argue that analysis come to problems with prejudice that cannot help but influences their work. Furthermore, even in choosing what questions to ask or what problems to analyses, economists are influenced by political, ideological and moral view.

The general felling is that economics is not just positive or just normative. It is both positive as well as normative.