Positive vs. Normative Statements in Economics

Definitions

Positive Statements

• Definition: Factual-based statements that describe the world as it is.
• Characteristics:
  • Can be verified or falsified through observation.
  • Example: "The grass is green."
  • Economic Example: "An increase in the minimum wage will increase unemployment."

Normative Statements

• Definition: Opinion-based statements about how the world should or ought to be.
• Characteristics:
  • Cannot be proven or quantified.
  • Example: "The grass should be purple."
  • Economic Example: "An increase in the minimum wage ought to happen to improve living standards."

Importance in Economics

• Policy Recommendations: The distinction is crucial for making effective economic policy recommendations.
• Current Relevance: The trend of fake news blurs the line between these statements.
  • Example: COVID-19 pandemic coverage.
• Economic Debate: The minimum wage debate illustrates the use of positive and normative statements.

Application and Analysis

• News Evaluation: Identify whether news statements are positive or normative.
  • Positive Statement Example: "GDP increased in the fourth quarter."
  • Normative Statement Example: "The economy is headed towards recession."

Conclusion

• Critical Thinking: Economists must distinguish between personal opinion and fact-based recommendations when discussing policy.
• Encouragement: Analyze news sources to identify the nature of the statements.