Separate a claim about what happens from a judgement about what should happen.
Economics studies how people and organisations make choices when resources have competing uses. It is a social science: explanations concern behaviour, institutions and evidence, using models with stated assumptions. Like natural sciences, economics uses models, observation and evidence to test explanations. It studies human choices and institutions, whose behaviour and context can change; isolating causes in a whole economy is often difficult. Natural sciences also face uncertainty and use simplifying assumptions. A positive statement makes a claim that could be tested against evidence; it need not be true. A normative statement contains a value judgement about what ought to happen. Microeconomics studies individual agents and markets; macroeconomics studies economy-wide outcomes such as national output, inflation and unemployment. The size of a business does not decide whether a question is microeconomic.
- Economics
- The study of how people, businesses and governments choose between competing uses of limited resources.
- Positive
- A claim about what happens that can be tested against evidence; it may turn out to be false.
- Normative
- A judgement about what should happen or which goal deserves priority. Evidence can inform the judgement, but cannot decide the priority by itself.
- Micro and macro
- Microeconomics studies individual decision makers and markets, such as one firm's prices. Macroeconomics studies the economy as a whole, such as national unemployment. A large firm's decision can still be microeconomic.
Models and evidence
A model is a simplification
Holding other influences unchanged lets us isolate a relationship. Use the assumption to interpret the result, then consider whether it fits the context. A prediction based on a model is not automatically a measured fact.
Social and natural sciences
Both use theory and evidence. An economist studying a bus-fare change must consider changes in income, service quality and travel preferences. A controlled natural-science experiment may isolate a factor more directly, but not every natural-science question permits controlled experiments either.
Statements can mix claims and values
"The programme will raise attendance, so it deserves priority" combines a testable prediction with a judgement about priority. Separate the parts before assessing the evidence.
Micro and macro can be connected
A firm may cut its workforce; widespread cuts can affect national employment. Identifying that connection does not make every firm-level question a macroeconomic one.
Worked example: Four claims about transport
Consider these four statements from a town meeting. Their accuracy has not been established.
- "A lower bus fare will increase the number of journeys on this route" is a positive, microeconomic prediction. Passenger data could help test it; other influences would need to be considered.
- "The town should give affordable travel priority over road building" is normative. Evidence can inform the decision, but the priority involves a value judgement.
- "National unemployment rose last year" is a positive, macroeconomic claim. It concerns an economy-wide measure and could be checked.
- An analysis of one large bus company's ticket pricing is still microeconomic. A study of inflation across the economy is macroeconomic.
Watch out for this
Positive means true, and normative means an unsupported opinion.
A false testable claim is still positive. A normative conclusion can be carefully supported by evidence; evidence alone does not determine the value placed on competing objectives.
Check your understanding
Which statement is normative?
- "Average bus fares increased by 5% last year."
- "The council should prioritise cheaper bus travel over more parking."
- "Higher bus fares will reduce journeys, other things equal."