For instance, an increase in government spending on health care leads to a higher GDP.

In contrary, normative economics is the study and presentation of policy prescriptions involving value judgments about the way in which scarce resources are allocated. It involves personal opinion and it is bias. Normative economics attempts to describe what ought to be. A normative statement is one that contains a value judgment. A normative economics sets a standard by which reality can be judged.

For instance, what might be the right level of health spending so that national welfare is maximized?

One important criterion by which a positive economics may be judged is the exte

nt to which it accurately explains reality.

Normative economics need to be judged on different criteria. A normative economics does not claim to reality. It attempts to provide a guide as to what is desirable or to be recommended. By making a number of assumptions, it is possible to show that efficiency will be maximized in an economy where all firms are perfectly competitive. Increasing the degree of competition in industry then becomes an ideal or a goal to be aimed for. Monopoly, in contrast, is shown to diminish welfare. Therefore the policy goal should be to break up monopolies.

Sometimes, both positive economics and normative economics are to be taken into account. For example, to know how best to help rise the living standards of the poor (normative economics) we need to know how the economy operates and why people are poor (positive economics). This means value judgments ar

Some topics in this essay:
Ceteris Paribus, , normative economics, positive economics, value judgments, economics judged, firms behave extremes, policy instead, firms behave, personal opinion, behave extremes,