What you read in online media is a combination of positive and normative statements. Some of them are subjective, and others are by actual facts and theories.
Definition of positive statements
Positive statements are types of objective statements that you can test or reject based on the available evidence and facts. The statement usually requires an investigation process by looking at what has happened and what is currently happening to form the basis of opinion.
Opposite of normative statements
Positive economics is a perspective in economics based on the theory that you can test by drawing facts. Positive economic statements describe things that are, will, or have happened. That may be true or false, and you can prove it using existing information or theories.
That contrasts with normative economics. Normative economic statements are subjective opinions. Normative statements usually contain the words “Must” and “Should,” which indicate the subjectivity of the individual.
Positive statements are based on facts or causal relationships. This statement seeks to explain something “as is” rather than “should” or “must.”
For example, raising interest rates will slow down inflation. This statement is positive. You can prove it using existing economic theories. You can also see past historical trends to support it.
Why should you know positive statements
Distinguishing positive and normative statements is very important at this time. Most of the information you read in online media is a combination of positive and normative statements. So you have to be able to distinguish them for objective analysis.
Likewise, a clear understanding of positive economics leads to better decisions about economic policy. Positive economics does not depend on subjective judgments and can be defined and tested. As such, it provides a precise causal scenario that can help individuals and policymakers make critical decisions.
Characteristics of normative statements
The following are the characteristics of a positive statement:
- Based on facts or evidence, and therefore, you can verify and prove it through data.
- Requiring an investigation of what has happened to form an opinion or to predict something in the future.
- Nothing involves value or subjectivity
- Often to describe something measurable, for example, the unemployment rate in the economy or a company’s output.
- Useful in constructing and explaining economic theories and concepts that have existed for years.
Examples of normative statements
- A decrease in income will cause a reduction in demand for goods and services. A lower income reduces the ability to pay for consumers.
- Currency depreciation will cause an increase in exports. Domestic goods are cheaper for foreigners, so ask for more.
- If the government raises taxes on food products, it will cause a decrease in the net income of food producers. Taxes are a burden on companies. Therefore, when expenses rise, the company’s net profit falls.
- Rising crude oil prices on world markets will lead to an increase in the production costs of the electricity industry. Electric power producers use oil as input in their generation. So when input prices are higher, production costs increase.
- A decrease in the supply of natural gas will cause price increases. You can test it using the law of demand or view historical data.
- Reducing income tax will increase consumer incentives to shop more. Lower taxes means more money in the pocket. It increases consumer disposable income.
- Increasing the number of tourists in Bali will create more jobs. The arrival of tourists increases the potential demand for goods and services. It drives economic activity in Bali.
- Higher interest rates reduce the growth of bank loans. Debtors incur higher repayments when interest rates rise, and therefore, they tend to be reluctant to apply for new loans.