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Normative economics is the branch of economics that incorporates value judgments (that is, normative judgements) about what the economy ought to be like or what particular policy actions ought to be recommended to achieve a desirable goal. Normative economics looks at the desirability of certain aspects of the economy. It underlies expressions of support for particular economic policies.

It is common to distinguish normative economics ("what ought to be" in economic matters) from positive economics ("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 (Sen, 1970, p, 61). This undermines the common distinction (Wong, 1987, p. 923). But Sen 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 (Sen, 1970, pp. 63-64).

To illustrate, 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 depends on 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. Consumers who purchase more expensive milk products might argue otherwise.

See also

References

  • Marc Fleurbaey (2008). "ethics and economics," The New Palgrave Dictionary of Economics. Abstract.
  • Milton Friedman (1953). "The Methodology of Positive Economics," Essays in Positive Economics
  • John C. Harsanyi (1987), “value judgemts," The New Palgrave: A Dictionary of Economics, v. 4, pp. 792-93
  • Daniel M. Hausman and Michael S. McPherson (1996). Economic Analysis and Moral Philosophy, Cambridge: Cambridge University Press.
  • Phillipe Mongin (2002). "Is There Progress in Normative Economics?", same title in Stephan Boehm, et al., eds., Is There Progress in Economics?
  • Amartya K. Sen (1970), Collective Choice and Social Welfare. "5.3 Basic and Nonbasic Judgments" & "5.4 Facts and Values," pp. 59-64.
  • Stanley Wong (1987). “positive economics," The New Palgrave: A Dictionary of Economics, v. 3, pp. 920-21.
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