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Positive economics is a social science based on factual analysis and cause and effect that avoids value judgments, opinion or moral and ethical statements. Unlike normative economics that subjectively emphasizes what should be, positive economics states what is, what was or what likely will be in a way that can be tested for accuracy. For example, the statement “decreasing interest rates will encourage consumers to spend” could be considered as positive while “the government should regulate the cost of food to help feed the poor” is a normative economic statement. The former is a neutral statement based on fact that can be proven with observable evidence while the latter is a subjective statement presented as an emotional appeal.
The reason why an economic situation has developed is a typical focus of positive economics. If the price of a commodity is proven to have suddenly decreased or increased significantly in a few months or a year, the positive economist would attempt to determine the factors that affected price. In contrast, a normative economist may suggest what policy should be enacted to reverse the effects of the price increase or decrease.
Positive economists also help determine the likely consequences of a new economic policy or a policy change such as an increase in taxes. One of the most common tools used for such an assessment is called cost benefit analysis. Cost benefit analysis compares the total costs of an undertaking with its anticipated benefits. Additional related assessment tools include economic impact analysis, fiscal impact analysis and cost effectiveness analysis.
Although positive economics can aid in the prediction of the results of an economic policy via statistical methodology and theory, positive economists do not purposely seek policy changes or judge existing or former rules. Instead they try to objectively resolve economic issues by studying and testing evidence. Politicians and the general public are left to evaluate and choose what economic policies should be discarded, adopted or amended based on the results.
The distinction between positive and normative economics was elaborated first by John Neville Keynes in the late 19th century and more recently in a 1953 essay by Milton Friedman. Friedman posited that as a science, positive economics should deal in objective and observable statements. The value of an economy theory, according to Friedman, is determined by its accuracy as a predictor of future economic events and consequences.
A combination of positive and normative economic statements is commonly used in the media. Normative economic statements are preferred by political leaders who purpose solutions to economic problems or who wish to influence economic policy. Positive economists emphasize the scientific aspect of a specific field and limit themselves to questions that can be resolved with observable evidence.