Difference between normative and welfare economics?
Introduction:
Normative economics and welfare economics are two different branches of economics. While normative economics is concerned with what should be, welfare economics is concerned with what is. In this answer, we will explore the differences between normative and welfare economics.
Normative Economics:
Normative economics is concerned with what should be. It is the study of how the economy ought to be organized and how resources ought to be allocated in order to achieve certain goals. Normative economics is concerned with questions such as:
- What is the optimal level of taxation?
- What is the optimal level of government spending?
- What is the optimal level of regulation?
In normative economics, economists make value judgments about what is good or bad for society. They use this information to make recommendations about how the economy should be organized. Normative economics is often used in policy making and decision making.
Welfare Economics:
Welfare economics is concerned with what is. It is the study of how the economy actually works and how resources are actually allocated. Welfare economics is concerned with questions such as:
- What is the level of economic welfare in society?
- What is the level of economic inequality in society?
- What is the level of economic efficiency in society?
In welfare economics, economists use data and statistical analysis to understand how the economy is working. They use this information to make recommendations about how the economy could be improved. Welfare economics is often used in the evaluation of policy and in the analysis of market outcomes.
Differences:
The main differences between normative and welfare economics are as follows:
- Normative economics is concerned with what should be, while welfare economics is concerned with what is.
- Normative economics is based on value judgments, while welfare economics is based on data and statistical analysis.
- Normative economics is often used in policy making and decision making, while welfare economics is often used in the evaluation of policies and in the analysis of market outcomes.
Conclusion:
In conclusion, normative economics and welfare economics are two different branches of economics. While normative economics is concerned with what should be, welfare economics is concerned with what is. Normative economics is based on value judgments, while welfare economics is based on data and statistical analysis. Both branches of economics are important in understanding how the economy works and in making recommendations for policy and decision making.
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