Positive & Normative Economics

 

When we describe how these decisions are made, and how the economy works, we are engaging in positive economics. Positive economics is descriptive - it analyzes and outlines how the economy does operate. What decisions are made, and the ways in which they impact individuals and communities. 

 

If we describe how we believe economic decisions should be made, and how the economy should work, we are engaging in normative economics. Normative economics is prescriptive - it analyzes the economy along ethical and moral lines, and attempts to prescribe actions that should be taken in the service of ethical and moral principles. 

 

Because individuals and societies disagree about ethics and morality, we often disagree about normative economics. These disagreements form the foundation of what we refer to as politics - the visions that individuals, groups and communities about how society should work.