What are positive statements?

Positive statements are objective statements that can be tested, amended or rejected by referring to the available evidence. Positive economics deals with objective explanation and the testing and rejection of theories. For example:

• A fall in incomes will lead to a rise in demand for own-label supermarket foods
• If the government raises the tax on beer, this will lead to a fall in profits of the brewers.
• The rising price of crude oil on world markets will lead to an increase in cycling to work
• A reduction in income tax will improve the incentives of the unemployed to find work.
• A rise in average temperatures will increase the demand for sun screen products.
• Higher interest rates will reduce house prices
• Cut-price alcohol has increased the demand for alcohol among teenagers
• A car scrappage scheme will lead to fall in the price of second hand cars

What are Normative Statements?

Normative statements are subjective statements – i.e. they carry value judgments. For example:

• Pollution is the most serious economic problem
• Unemployment is more harmful than inflation
• The congestion charge for drivers of petrol-guzzling cars should increase to £25
• The government should increase the minimum wage to £7 per hour to reduce poverty.
• The government is right to introduce a ban on smoking in public places.
• The retirement age should be raised to 70 to combat the effects of our ageing population.
• Resources are best allocated by allowing the market mechanism to work freely
• The government should enforce minimum prices for beers and lagers sold in supermarkets and off-licences in a bid to control alcohol consumption

Focusing on the evidence is called adopting an empirical approach – evidence-based work is becoming more and more important in shaping different government policies and how much funding to give to each.

Key point:

Most economic decisions and policy are influenced by value judgements, which vary from person to person, resulting in fierce debate between competing political parties.