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Normative Economics: Definition & Examples

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  • 0:01 What Is Normative Economics
  • 1:11 Where Is Normative…
  • 2:02 Examples
  • 3:09 Lesson Summary
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Lesson Transcript
Instructor: Brianna Whiting

Brianna has a masters of education in educational leadership, a DBA business management, and a BS in animal science.

In this lesson, we'll explore normative economics. We will look at the definition of the term and see how it compares to positive economics. Some examples will be considered.

What Is Normative Economics?

We all have our opinions about issues and situations, especially those we are most passionate about. For example, take Kelly. Kelly is an animal lover who breeds and trains dogs. Every time she passes a dog on the street, she immediately bends down to pet it, which earns her a lot of wet doggie kisses. Kelly's business card also expresses her feelings about dogs, which reads: 'A home without a dog is a home without love.' In her promotional piece, Kelly is simply stating an opinion and not a fact. She's making a subjective, or normative statement, about the desirability of owning a dog.

As a branch of economics, normative economics is subjective in nature and concerned with 'what ought to be.' In other words, normative economics focuses on opinions and theoretical scenarios rather than actual facts. As a value judgment, normative economics stands in sharp contrast to positive economics, which is objective rather than subjective in nature. This type of economics looks at what is happening in the economy, and while not necessarily correct, the statements can be evaluated and eventually proven or disproven.

Where is Normative Economics Used?

We frequently find normative economics in journalism and social media, where some reporters and bloggers express opinions instead of conducting objective analyses. For example, stating that all Americans would be better off if our government would only cut taxes, doesn't take into consideration how that same government would function with less revenue. However, normative economics can be useful when it comes to brainstorming and setting goals. For example, when companies or governments establish goals, they're often in the form of subjective opinions about what might be best for the organization or the country.

When it comes to making important decisions for a company or government such as rules, regulations, and policies, normative economics would not be an ideal approach. This is where positive economics comes in because, as a branch of the field, it is based upon testable, amendable facts.

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