1.1.2 Positive and Normative economic Statements

• Fact


  Objective statement that can be tested with factual evidence and accepted or rejected
• Fiction


  Subjective statement not based on factual evidence
• Positive statements are objective and can be tested with factual evidence
• Positive statements


  • "Raising the tax on alcohol will lead to a fall in the demand of alcohol and a fall in the profits of pub landlords"
  • "Higher temperatures will lead to an increase in the demand for sun cream"
• Normative statements


  Based on value judgements, subjective and not based on factual evidence
• Normative statements


  • "The free market is the best way to allocate resources"
  • "The government should increase the tax on alcohol"
• Value judgements can influence economic decision making and policy
• Different economists may make different judgements from the same statistic, for example the rate of inflation