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The difference between normative and positive statements

14:54 0
The difference between normative and positive statements

The difference between positive and normative statements is something that every person should be able to understand. Generally, we already intuitively know the difference between a fact and an opinion but sometimes the difference can be a little nuanced so it is good to apply technical terms to the different types of statements which is why it is  useful to know how to recognize the difference between normative and positive statements. First, normative statements are generally opinion or belief based... you may think of a normative statement as something that someone thinks should be normal or standard across society. Alternatively, a positive statement is a statement of "what is" and is generally a statement that can be determined to either be true or false. A trick to remember that a positive statement is testable is to think of a blood test for a disease, it generally either comes back positive or negative.

The rest of this post will go over several statements to practice how to recognize the differences between these example normative and positive statements in the real world.

Examples of Normative Statements in Economics

18:21 0
Examples of Normative Statements in Economics
A normative statement is a statement that stresses an opinion or belief that cannot be readily tested. They generally suggest a mindset that certain things should happen in order for the world to be better. Easy examples includes statements such as "inequality is bad" or "genders should be paid the same salary". Both of these statements stress a belief that is not an observation of "what is" but rather "what should be".

Understanding how to recognize a normative statement is a very important skill to have when you are trying to pass your economics class. Generally, economists try to avoid making too many normative statements because they view them as closer to being in the realm of political science and are typically unable to be found to be true or false using traditional hypothesis testing. However, this doesn't mean that they are not useful in pursuing a better more livable society for everyone.

The rest of this post will go through several examples to help you identify trends in normative statements and how to differentiate them from positive statements as you go through your course.

Examples of positive statements in economics

11:19 0
Examples of positive statements in economics

Positive statements tend to focus on statements about what is instead of opinions or what ought to be (a normative statement). In economics we tend to view our study as exploring questions about the truth and the way that people behave. We make guesses about behavior that people engage in. In order to make these guesses, economists will create hypotheses or predictions about the causes and outcomes. These hypotheses are testable and are descriptions of the behavior. The fact that the hypotheses can be found to true or not, and explored with evidence makes it a positive statement.
Let’s go through some examples of statements to see whether they are indeed positive or are instead normative in nature.

What is a trade war?

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What is a trade war?
This post is going to go over what a trade war is and what may cause them. It will also briefly discuss why they are not a good idea in general. While most economists tend agree that free trade is good for total economic surplus (meaning on the whole, or considering everyone), there are always going to individuals that lose some surplus from trade. This post goes through an example of why domestic firms producing shirts are angry with the fact that they must compete with foreign firms, so they ask for the government to impose tariffs.

How to figure out who has the comparative advantage.

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How to figure out who has the comparative advantage.
Shortly after you learn about opportunity costs and PPFs, you will need to learn about gains from trade and comparative advantage. The trick to figuring out who has the comparative advantage in which good is to be able to calculate opportunity costs quickly and reliably. You will probably be given a table that shows the different possible levels of output a certain individual is able to produce (of two goods or services). You can use this information to calculate the tradeoffs (or opportunity costs) associated with the different possible levels of production. Once you have the opportunity cost calculated, you can compare that result to the opportunity cost the other country or individual has for the good to see which opportunity cost is lower. The individual or country with the lowest opportunity has the comparative advantage. Below, I go through two examples, one with individuals and another with countries.

How to calculate marginal utility per dollar spent

13:13 1
How to calculate marginal utility per dollar spent
In economics you are often required to calculate the marginal utility per dollar spent during the consumer theory or the utility theory portion of the class. The calculation is easy, as you only need to divide the marginal utility of a good or service by the price of that good or service. If you do not have the marginal utility of the good or service, then you need to figure it out by looking at the difference between total utility amounts at different levels of consumption (see this link for help on calculating marginal values—and also see the example below). The idea behind calculating marginal utility per dollar spent is to find out how effective you are while allocating your budget. For example, if a marginal utility per dollar spent is higher for one good than it is for another good then it means that you are not allocating your budget efficiently.  In order to allocate your budget efficiently, you need to have the marginal utility per dollar spent for every good and service be equal to each other.

What is the opportunity cost of going to College?

13:14 1
What is the opportunity cost of going to College?
The decision to go to College (or where to go to College) is going to be one of the most important of your life. Whether you decide to go to a local State school or a prestigious private liberal arts school is going to have long term impacts on your career outlooks and debt. It is important to consider all possible decisions and benefits and costs before you make this important decision. However, we would not be economists if we did not look at the opportunity costs associated with going to College (or University). Perhaps the largest opportunity cost will be the tuition of the College, but this is not going to be the only opportunity cost that we have to consider.