Normative economics is that part or perspective of economics which gives value judgement or normative judgments about the outcome of the economy or what the goals of public policy ought to be. It tells us ‘what ought to be’.
Normative Economics – Definition
Normative economics as a science answers the questions ‘What ought to be?’, ‘What should happen?’or ‘What should have happened?’. Normative economics does not base its argument on empirical and scientific data or evidence, but it talks about what should the ideal situation be like. It heavily concerns itself with value judgments and statements of “what ought to be” rather than facts based on cause-and-effect statements. This subject aims to determine ideals and it cannot be verified with actual data. It is based upon individual opinion or judgement and is therefore suggestive in nature. It gives only value judgments which change from person to person depending on their opinion.
Objective of Normative Economics
Normative economics discusses what desirable outcomes which should be achieved are and what are undesirable things that should be avoided. For example, India should not be an overpopulated country OR Prices should not rise – are normative statements. Its objective is to determine the ideal economic situation, condition or policies. It reflects upon ideologically prescriptive, judgments toward economic development, investment projects, statements, and scenarios.
Identifying a Normative Statement
For example, “We should cut taxes in half to increase disposable income levels.”
The given example is a normative statement because it shows value judgments. It assumes that disposable income levels should be higher.
Economic statements which are normative in nature cannot be verified or tested for factual values or legitimate cause and effect. Given below are a few examples of normative statements –
- “Women should be provided higher school loans than men,”
- “Laborers should receive greater parts of capitalist profits,”
- “Working citizens should not pay for hospital facilities.”
Normative economic statements generally have keywords such as “should” and “ought.” However, it is not necessary that all normative economic statements will have such words or that all the statements with these words are normative. Normative economics is the type of economics that examines the way an economy should work under ideal circumstances.