1.1.2 positive and normative economic statements

Question 1

Distinction between positive and normative economic statements

Answer 1

positive - statement that is objective made without any value judgements, can be tested to be proven or disproven

For 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 is “​Warm weather will lead to an increase in ice cream sales​”

normative - statement is a value judgement and is subjective it cannot be proven or disproven, it often includes words such as ought, maybe, unwise, should

One example of a normative statement is “​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, since it presents an opinion

Question 2

what is The role of value judgements in influencing economic decision making and policy

Answer 2

• 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.
• 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