Normative Economics
Candlefocus EditorThe aim of normative economics is often to optimize economic conditions for society by actively intervening in the economic system. This typically involves examining the various existing public policy tools and trying to determine which will be most effective in facilitating desired outcomes. This is typically done through the use of predictive models which try to identify the effects of a proposed policy or set of policies before they are actually implemented.
Normative economics is concerned with the evaluation of economic outcomes and proposals, so it incorporates elements of both positive and normative economics. Positive economics is concerned with describing observed patterns of behavior, while normative economics seeks to evaluate those patterns from a value-based perspective. The evaluation can involve considering factors such as equity, efficiency, and the environment. It requires the analyst to consider subjective matters, such as ethical and moral implications, in their analysis.
Normative economic judgments are inherently subjective, as they depend on one’s values and beliefs on what is fair and unjust. As such, normative economics is a matter of opinion, rather than empirical evidence. It does not attempt to explain why certain economic events occur, but instead seeks to determine how governments and other public policy actors should respond to those events.
Normative economics is an important part of decision making in the public and private sector. By informing policymakers of what they should do and what outcomes they should strive to achieve, it helps to guide decisions on economic matters. This provides a basis to create a more stable and prosperous economy through proven interventions and policies.