1.1.2 Positive and normative economic statements

Question 1

Positive statement

Answer 1

Statement which is objective and made without any obvious value judgements or emotions. They can be tested to be proven or disproven and they are often expressed in the form of a hypothesis that can be analysed and evaluated.
- Statements about the future can be positive if they can be proven or disproven in the future.
Example: “​Raising taxes will lead to an increase in tax revenue​” is a positive statement as it can be tested to see whether it is true or false. Another example: “​Warm weather will lead to an increase in ice cream sales​”.

Question 2

Normative statement

Answer 2

Statement which is subjective, so cannot be proven or disproven. It often includes words such as ought, maybe, unwise, should etc. or says that one action is better than another.
Example: “The free market is the best way to allocate resources​” as it is suggesting one method of resource allocation is better than another, which cannot be tested. “The government should increase taxes​” is also a normative statement.

Question 3

Positive and normative statement relationship

Answer 3

Economists tend to ​use positive statements to back up normative statements​. For example, ‘​The government should increase the interest rate’ is a normative statement which can be a backed up by ‘​The rate of inflation is at 5%​’, a positive statement.

Question 4

Role of value judgments (in influencing economic decision making and policy)

Answer 4

• Value judgements can influence economic decision making and policy.
  Different economists may make different judgements from the same statistic, for example rising inflation could mean different things.