Normative economics is a branch of economic theory that seeks to identify what should be or what ought to be, rather than offering descriptive accounts of what is observed in real-world economic situations. Instead of simply describing and analyzing market conditions and pricing mechanisms in a neutral manner, as is the realm of positive economics, normative economics puts forward ideas and values that attempt to determine appropriate economic outcomes. Normative economics offers opinions and comments on what policy should be adopted, what economic activity is desirable, or what constitutes a fair distribution of resources or income levels. Since normative economics is concerned with what should or ought to be, rather than what is, it does involve making subjective judgments.

The 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.