IB Economics: Positive and normative economics
You will often hear statements about economic issues on the television and written in
newspapers and magazines. These statements can be divided into two main groups positive and normative.
POSITIVE STATEMENTS
Positive statements are objective statements dealing with matters of fact or they
question about how things actually are. They may suggest an economic relationship that
can be tested by looking to the available evidence.
Positive economics can be described as “what is, what was, and what probably will be”
economics. Often these statements will be expressed in the form of a hypothesis that can
be analysed and evaluated.
Examples:





A rise in interest rates will cause a rise in the exchange rate and an increase in the
demand for imported products
Lower taxes may stimulate an increase in the active labour supply
A national minimum wage is likely to cause a contraction in the demand for lowskilled labour
The Tanzanian economy now has lower unemployment than Germany
The American stock market has boomed in recent years
NORMATIVE STATEMENTS
Normative statements are subjective - based on opinion only - often without a basis in
fact or theory. They are value-laden statements that cannot be proved or disproved.
It is important to be able to distinguish between these types of statements - particularly
when heated arguments and debates are taking place. Most economists tend to adopt a
positive approach.
Examples:




The decision to grant independence for the Bank of Tanzania is unwise and
should be reversed
A national minimum wage is totally undesirable as it does not help the poor and
causes higher unemployment and inflation
The national minimum wage should be increased to 15Rmb per hour as a method
of reducing poverty
Protectionism is the only proper way to improve the living standards of workers
whose jobs are threatened by cheap imports
Practice Questions
1. Which of the following is a normative statement as defined by your text?
1. The personal income tax system discourages work effort by decreasing the
incentive to work.
2. A value-added tax is a regressive tax.
3. Raising money through a personal income tax may discourage work effort, but is a
better way to raise tax revenue because it is fairer.
4. All of the above are normative statements.
5. None of the above is a normative statement.
2. Which of the following is an example of a normative economic statement?
1. The free market system is flawed because allowing consumers to “vote with their
dollars” is unfair and shouldn’t be allowed.
2. Because of the current economic recession, government policy should be more
concerned with stimulating business activity and decreasing unemployment than
with decreasing the government budget deficit.
3. Minimum wage laws are bad for an economy because it’s unfair to force small
employers to pay workers more than they may be worth.
4. All of the above are examples of normative economic statements.
5. None of the above is an example of a normative economic statement.
3. The difference between a normative and a positive statement in economics
is that:
1. Normative statements are statements of fact while positive statements are
statements of fiction.
2. Normative statements are subjective (telling what the speaker thinks ought to be)
while positive statements are objective (telling what the speaker thinks is).
3. Positive statements are subjective (telling what the speaker thinks ought to be)
while normative statements are objective (telling what the speaker thinks is).
4. Positive statements tell what is occurring while normative statements tell what
isn’t occurring.
5. Positive statement deal with microeconomic issues while normative statements
deal with macroeconomic issues.
4. Which of the following is a normative statement as defined by your text?
1. President Bush’s proposed $1.6 trillion tax cut will result in an increase in
demand for goods and services by American households.
2. President Bush’s proposed $1.6 trillion tax cut will stimulate the economy and
help to keep the unemployment rate from rising.
3. President Bush’s proposed $1.6 trillion tax cut will give a greater tax cut to the
rich than to the poor.
4. President Bush’s proposed $1.6 trillion tax cut is fiscally irresponsible since any
extra tax money should be used to pay down the national debt.
5. none of the above is a normative statement.