1.1.2

• Positive statements

  Positive statements are objective statements that can be tested, amended or rejected by referring to the available evidence. Positive economics deals with objective explanation and the testing and rejection of theories. For example:

  • If the government raises the tax on beer, this will then lead to a fall in profits of brewers
  • A fall in the cost of generating solar energy may cause a contraction of demand for coal
• Normative Statements

  Normative statements are subjective statements i.e. they carry value judgements. For example:

  • High unemployment is more harmful to a country such as the UK than high rates of inflation
  • The retirement age in Britain should be raised to 70 combat the effects of an ageing population
• The rate of value judgements

  Most economic decisions and policy are influenced by 'value judgements'. These vary from person to person, from company to company, from government to government, and from country to country. Value judgements help us to explain why economic policies vary from place to place, and from time to time.