Normative economics

Normative economics

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Normative economics is that part of economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

 that expresses value
Value theory
Value theory encompasses a range of approaches to understanding how, why and to what degree people should value things; whether the thing is a person, idea, object, or anything else. This investigation began in ancient philosophy, where it is called axiology or ethics. Early philosophical...

 judgments (normative
Norm (philosophy)
Norms are concepts of practical import, oriented to effecting an action, rather than conceptual abstractions that describe, explain, and express. Normative sentences imply “ought-to” types of statements and assertions, in distinction to sentences that provide “is” types of statements and assertions...

 judgments) about economic fairness
Equity (economics)
Equity is the concept or idea of fairness in economics, particularly as to taxation or welfare economics. More specifically it may refer to equal life chances regardless of identity, to provide all citizens with a basic minimum of income/goods/services or to increase funds and commitment for...

 or what the economy ought to be like or what goals of public policy
Public policy
Public policy as government action is generally the principled guide to action taken by the administrative or executive branches of the state with regard to a class of issues in a manner consistent with law and institutional customs. In general, the foundation is the pertinent national and...

 ought to be.

It is common to distinguish normative economics ("what ought to be" in economic matters) from positive economics
Positive economics
Positive economics is the branch of economics that concerns the description and explanation of economic phenomena. It focuses on facts and cause-and-effect behavioral relationships and includes the development and testing of economics theories...

 ("what is"). But many normative (value) judgments are held conditionally, to be given up if facts or knowledge of facts changes, so that a change of values may be purely scientific. But welfare economist Amartya Sen
Amartya Sen
Amartya Sen, CH is an Indian economist who was awarded the 1998 Nobel Prize in Economic Sciences for his contributions to welfare economics and social choice theory, and for his interest in the problems of society's poorest members...

 distinguishes basic (normative) judgments, which do not depend on such knowledge, from nonbasic judgments, which do. He finds it interesting to note that "no judgments are demonstrably basic" while some value judgments may be shown to be nonbasic. This leaves open the possibility of fruitful scientific discussion of value judgments.

An example of a normative economic statement is as follows:
     The price of milk should be $6 a gallon to give dairy farmers a higher living standard and to save the family farm.
This is a normative statement, because it reflects value judgments and cannot be proven true or false by comparison against real world data. This specific statement makes the judgment that farmers need a higher living standard and that family farms need to be saved.

Some earlier technical problems posed in welfare economics
Welfare economics
Welfare economics is a branch of economics that uses microeconomic techniques to evaluate economic well-being, especially relative to competitive general equilibrium within an economy as to economic efficiency and the resulting income distribution associated with it...

 and the theory of justice have been sufficiently addressed as to leave room for consideration of proposals in applied fields such as resource allocation
Resource allocation
Resource allocation is used to assign the available resources in an economic way. It is part of resource management. In project management, resource allocation is the scheduling of activities and the resources required by those activities while taking into consideration both the resource...

, public policy
Public policy
Public policy as government action is generally the principled guide to action taken by the administrative or executive branches of the state with regard to a class of issues in a manner consistent with law and institutional customs. In general, the foundation is the pertinent national and...

, social indicators, and inequality and poverty measurement
Income inequality metrics
The concept of inequality is distinct from that of poverty and fairness. Income inequality metrics or income distribution metrics are used by social scientists to measure the distribution of income, and economic inequality among the participants in a particular economy, such as that of a specific...


See also


  • Normative science
    Normative science
    A normative science is a form of inquiry, typically involving a community of inquiry and its accumulated body of provisional knowledge, that seeks to discover good ways of achieving recognized aims, ends, goals, objectives, or purposes....

  • Positive economics
    Positive economics
    Positive economics is the branch of economics that concerns the description and explanation of economic phenomena. It focuses on facts and cause-and-effect behavioral relationships and includes the development and testing of economics theories...

  • Constitutional economics
    Constitutional economics
    Constitutional economics is a research program in economics and constitutionalism that has been described as extending beyond the definition of 'the economic analysis of constitutional law' in explaining the choice "of alternative sets of legal-institutional-constitutional rules that constrain the...


  • Distribution (economics)
    Distribution (economics)
    Distribution in economics refers to the way total output, income, or wealth is distributed among individuals or among the factors of production .. In general theory and the national income and product accounts, each unit of output corresponds to a unit of income...

  • Justice (economics)
    Justice (economics)
    Justice in economics is a subcategory of welfare economics with models frequently representing the ethical-social requirements of a given theory. That theory may or may not elicit acceptance...


  • Welfare economics
    Welfare economics
    Welfare economics is a branch of economics that uses microeconomic techniques to evaluate economic well-being, especially relative to competitive general equilibrium within an economy as to economic efficiency and the resulting income distribution associated with it...

  • Social welfare function
    Social welfare function
    In economics, a social welfare function is a real-valued function that ranks conceivable social states from lowest to highest. Inputs of the function include any variables considered to affect the economic welfare of a society...


  • Social choice theory
    Social choice theory
    Social choice theory is a theoretical framework for measuring individual interests, values, or welfares as an aggregate towards collective decision. A non-theoretical example of a collective decision is passing a set of laws under a constitution. Social choice theory dates from Condorcet's...

  • The Is-ought problem
    Is-ought problem
    The is–ought problem in meta-ethics as articulated by Scottish philosopher and historian, David Hume , is that many writers make claims about what ought to be on the basis of statements about what is...