Economics is a social science. It studies human behaviour using the scientific method: observing patterns, building models from assumptions, and testing predictions against real-world data.
Analysis chain (AO2): Economics studies human behaviour → behaviour varies and cannot be tested in a laboratory → economists use models and assumptions (ceteris paribus) to isolate one cause at a time.
| Positive statements | Normative statements | |
|---|---|---|
| Nature | Statements of fact | Statements of opinion based on value judgements |
| Testable? | Can be tested true or false against evidence | Cannot be proved right or wrong by facts |
| Key words | No value words | Often contain "should", "ought to", "fair", "better", "best" |
| Settled by | Examining real-world data and events | Persuasion, debate and voting |
| Example | "India's CPI inflation was 5.4% in March 2025" | "The RBI should cut interest rates to boost growth" |
A positive statement can be false and still positive, e.g. "inflation was 20%" can be checked against data even if it is wrong.
Analysis chain (AO2): A positive statement can be tested against evidence → it can be shown true or false; a normative statement contains a value judgement ('should', 'ought', 'too high') → it cannot be tested.
| Period | Meaning | Example |
|---|---|---|
| Short run | At least one factor of production is fixed (usually capital); variable factors such as labour can change | Tata Motors can hire more assembly-line workers quickly but cannot build a new factory overnight |
| Long run | All factors of production are variable; technology is still fixed | Tata Motors can build and commission a new plant |
| Very long run | Even the state of technology can change | The shift from petrol/diesel to EV manufacturing |
The short run is not a fixed length of time. It depends on how quickly the fixed factor can be varied: a roadside chai stall can add a second burner within a day, but a steel plant's blast furnaces may be fixed for years.
Analysis chain (AO2): Short run: at least one factor is fixed → firms can only change output by using variable factors more intensively → supply is less elastic. Long run: all factors variable → firms can build new capacity → supply becomes more elastic.
| No. | Question | Marks | Model answer |
|---|---|---|---|
| 1 | Explain the difference between positive and normative statements and consider whether economists can ever avoid value judgements when giving policy advice. | 8 | ✓ below |
| 2 | Using examples, explain the meaning of ceteris paribus and consider why economists rely on this assumption. | 8 | |
| 3 | Explain why the time period matters in economic analysis and consider how the short-run and long-run effects of a policy may differ. | 8 | |
| 4 | Assess whether economics can be considered a science. | 12 |
Question: Explain the difference between positive and normative statements and consider whether economists can ever avoid value judgements when giving policy advice. [8]
[AO1 Knowledge & understanding] A positive statement is objective and can be tested against evidence to see whether it is true or false, for example "India's CPI inflation rate was 5% last year". A normative statement contains a value judgement about what ought to happen, often using words such as "should" or "too high", for example "the government should reduce GST on medicines".
[AO2 Analysis] Economists use positive analysis to predict the effects of a policy. For example, an economist can test the claim "a rise in the tax on cigarettes will reduce consumption, ceteris paribus" by looking at data from previous tax rises. Because the price elasticity of demand for cigarettes is inelastic, the evidence may show only a small fall in consumption but a large rise in tax revenue. This is positive economics because it describes what will happen. Deciding whether that outcome is desirable, given that the tax falls more heavily on poorer smokers, requires a normative judgement about fairness.
[AO3 Evaluation] Economists can keep their analysis positive, but policy advice usually requires choosing between objectives, such as higher revenue versus fairness to low-income groups. Even the choice of which data to collect and which effects to measure can reflect the economist's values. However, a good economist can make the value judgement clear and separate it from the evidence, so that decision-makers know which part is fact and which part is opinion.
[Conclusion (AO3 judgement)] Therefore economists cannot completely avoid value judgements when they advise on policy, but they can reduce their influence by basing advice on positive evidence and stating their values openly.