How do Positive and Normative Economics affect decision-making?
http://www.investopedia.com/terms/p/positiveeconomics.asp
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Positive and normative economics are two different approaches that affect decision-making in different ways. Let's break down how each approach influences decision-making:
1. Positive Economics: Positive economics is concerned with analyzing and explaining economic phenomena as they are, without making any value judgments. It focuses on describing and predicting economic behavior based on data and evidence. Positive economics seeks to answer questions like "What is?" and "What will be?" rather than offering opinions on what should or ought to be.
When it comes to decision-making, positive economics provides objective information and analysis that can help individuals, businesses, and policymakers make informed choices. By examining and understanding current economic conditions, such as market trends, consumer behavior, and employment rates, decision-makers can assess the potential outcomes of their choices and make decisions based on realistic expectations.
For example, a business owner using positive economics might analyze market demand and production costs to determine the profitability of expanding their operations. By considering factual data and economic principles, they can make decisions that maximize their chances of success.
2. Normative Economics: Normative economics, on the other hand, involves value judgments and opinions about what economic outcomes should be. It focuses on answering questions like "What ought to be?" and "What should we do?" Normative economics incorporates personal beliefs, ethics, political ideologies, and social considerations when discussing economic issues.
When it comes to decision-making, normative economics plays a role in setting explicit goals, policies, and regulations. It helps individuals and policymakers determine what actions should be taken to achieve desired outcomes based on their values and principles. Normative economics often forms the foundation of public policy debates and discussions about income distribution, taxes, welfare programs, environmental regulations, and other societal issues.
For example, a government might use normative economic analysis to design a progressive tax system that aims to reduce income inequality. This decision involves societal values and judgments about fairness and redistribution of wealth.
In summary, positive economics informs decision-making by providing objective analysis and data, while normative economics guides decision-making based on subjective values and beliefs. It's essential to differentiate between the two approaches to understand how economic decisions are influenced and to make informed choices based on both empirical evidence and personal values.