Normative and Positive Approach - Essay Example

Accounting and society Student’s Name: Instructor’s Name: Date NORMATIVE AND POSITIVE APPROACH The objective to the success of a specific science involves the capacity to identify and delineate on the different opinions that form what ought to happen and what is something. This includes the demarcation of what is the normative approach and what is the positive approach. The understanding of both the normative approach and the positive approach constitute of an important field in economics and accounting. Their application in the business fraternity has proved to be a fundamental component to the approaches. Wages The normative approach offers a fundamental approach in studying the area of wages. An economist with the normative approach when it comes to setting wages will take the approach that everybody’s time and work should be valued equally. This would mean that people would be paid the same amount of wages for the time that they have worked. The normative approach in this sense would ensure that the all the workers would get the same amount of wages for each hour of work that they put in without necessarily considering other factors (Porwal 2001, p. 39). When it comes to the issue of wages, the positive approach adopts a very different approach than the normative approach (Bloom 1994, p. 24). An economist with the positive approach will point out that everybody’s skills are different and this would be used to justify on the different levels of wages that would be available. By paying higher wages for everybody's training and skills will ensure that people employment and paying of wages is per merit. In addition, by paying of higher wages ensures that employers attract people who are qualified for these positions. Employment The normative approach is also important in studying of employment issues. Employment issues forms a fundamental area of accounting studies in which an accountant with the normative approach mindset can advocate for a particular position (Alexander, Britton, & Jorissen 2007, p. 148). For example, an accountant can discover that unemployment in the Australian automobile industry increases when people opt to buy cars that are produced overseas. Due to this, an accountant with the normative approach can go on to advocate for people buying more cars from the domestic automobile industry rather than buy foreign cars. This would ensure that the employment opportunities would improve in the country. On the contrarily, the positive approach would look at the issue different. From the example of an accountant discovering that unemployment in the Australian automobile industry increases when people opt to buy cars that are produced overseas, they would deal with the issue differently. The accountant with the positive approach would look at the findings and just present them without taking a position in the issue (Riahi-Belkaoui 2005, p. 446). This is mainly due to the fact that the positive approach in accounting just look at the fact objectively and help in coming up with the input. In analyzing a situation, they do not impose value judgments on others. Business Models The normative business model is a business model applied in various businesses and adapted from the normative approach. The normative business model looks for the solutions to a problem as well as providing the alternatives for the business decisions. The model will attempt to define on the current operations whether they are sufficient or if another method would be better. In addition, the normative business model also tends to be more entrepreneurial and helps in finding avenues that will help in improving a company (Higson 2003, p.26). The positive approach as a business model follows a science oriented and testable model (Hyman 2010, p. 57). The use of positive business model can spell out on the various consequences of an economic decision as far as reason and evidence permit. The use of the positive business model ensures that the management can understand on the operations of the business rather than just passing judgments. It ensures that there are value free predictions and descriptions on the various economic relationships and decisions that affect the business. Policy Creation When it comes to the normative approach, it provides findings that are not only testable but also constitute on the basis that formulate the positive approach (Riahi-Belkaoui, 1996, p. 58). The normative approach brings about various statements and findings that could be used to generate various hypothesis based on the-ought to be type conclusions that are dependent on it. The normative approach is one approach that has been used by various policy decision makers in helping them provide for the well being of all the people by creation of hypothesis that touch on everyone. The normative approach has often led to provocation of debate among the economists as they look at questions of equity. This due to the fact that, most of the economic policies created are usually inherently normative. For instance, the policy to distribute wealth equally among the rich and poor is based on the value judgment that the harm created by the rich outweighs various benefits created by the poor. The normative approach is also important as it also offers different insights on the effectiveness of alternative policies. Most people find little reason in supposing that an economist value judgment is more superior to the other people. However, economic reasoning has been seen to offer various unique insights into application of alternative policies that will be achieved by achieving specific normative goals (Mattessich 1995, p.259-284). However, most economists in trying to create a good economic policy have discovered that is hard. It is for this that many economists have turned to the normative approach with the inclusion of the ethical standards. In spite of that, they have discovered that the right economic policies many not achieve goals and objective that the politicians desire(Mozes 1992, p. 93). For example, the choice of fast economic growth by equal income distribution is a policy that many politicians would agree to. This has led to advocating of effective policies rather than advocating for the right policies. Future Predictions The normative approach has been the major approach that many economists have followed. This is because the approach offers ways of analyzing economic events and factors in ways that allow for some degree of personal interpretation. This is in contrast to the positive approach where it only focuses on the hard facts without any subjective opinion included. The use of the normative approached has followed its verbiage in suggesting on the possible future events. This has been as a result of measuring the current events that is usually based on the individual interpretation and speculation of the data that is available (Alhabeeb & Moffitt, 2013, p. 18). The normative approach has been an essential tool in measuring and assessing current data that will be used to determine how things will progress to the future (Boyes & Melvin 2009, p. 6). This is important in ensuring that the desired outcome will emerge. Following the normative approach ensures that the status quo is not maintained by pursuing a more specific course of action where it is hoped that an economic situation different from the current one will come to pass. The normative approach thus ensures it provides directives that are specific and if implemented, will at least have a chance of changing and leading to the desired future outcome. The normative approach has proved to be the best choice as it offers valid reasoning on the best approach that should be followed (Keita 1997, p. 81-101). For example, the current data regarding consumer spending in a nation is n issue that can accurately be solved using the normative approach. The normative approach in this case would urge the government to reduce on the taxes by a certain percentage that will provide a disposable income to the taxpayer. This projection is based on what might happen rather than what is currently happening. This is in contrast to the positive approach, which would involve noting that tax cuts are helpful, but the current data shows that it is the government agencies that would have to reduce their expenses before the tax cut would be deemed as being feasible. Looking at the two scenarios, the difference is that the normative approach provides a possible outcome of making the change while the positive approach just deals with what must happen before the change can be made. For this reason, the normative approach has been seen t play a major role in the statements that are made in the media. While the statements are sometimes seen as being subjective or impartial, they do not lack basis. However, for the comments to accurately follow the normative approach they have to have a foundation that includes current verifiable facts and must provide a projection that includes some degree of logic on the impacts to the economy. From this perspective, the normative approach has been seen to provide a valuable service, which forms the basis of new approaches and ideas, which will aid in the establishment of workable goals for the future (Hyman 2008, p. 52). Cost Benefit Analysis The normative approach offers a key approach in studying the area of Cost benefit analysis. The normative approach offers a good unlike the positive approach to studying Cost benefit analysis as it allows for the assessment of the economic system and programs (Yuengert, 2004, p. 72). The normative approach deems that the economic program will be good if the social benefits shall exceed the social costs. This is because measuring the social benefits and social costs is practically impossible, but the normative approach helps the economist in understanding what should be done. The economists who follow the positive approach have opted for the normative approach as a backdoor to their studies. For example, an economist with the positive approach can carry out the study on the level of tax, which is most efficient. This study will be carried out when it comes to gathering of the most revenue to represent the least loss of production as seen in the Laffer curve(Hyman 2002, p. 433). This will be classified as positive economics as it aims at looking at the effects of a particular problem. However, after the most efficient tax rate has been looked, it suddenly reverts to something that ought to be implemented. The positive approach suddenly morphs into the normative approach. Food Subsidiary The positive approach has also been important in studying of impact of food subsidiary. The positive approach has played as a fundamental role in analyzing of the impact of food subsidy to the low-income persons. The positive approach has been utilized in the analysis in estimating on the effect of subsidy on the price of food to the quantity that is available to the recipients. The predictions from the analysis will then be checked in contrast to the facts so as to determine on the application of the positive approach to the study (Wilkinson 2005, 2009, p. 15). Studying Social Security and Retirement Decisions The positive and normative approach has also been applied in studying of the social security and retirement decisions. While the social insurance for the senior citizens is judged responsible for the trend associated with early retirement, the study on the social security and retirement decisions has brought to key approaches, the positive and normative approach. The normative argument looks at the social policy and the distortions that encompass the retirement decision. These distortions are looked at being second best optimal to the social security and retirement decision that brings about the normative approach (Peil & Staveren 2009, p. 9). On the other hand, it presents the positive approach which deals with the bias that exist in dealing with the social security and retirement decision. The social security and retirement decisions sometimes induces excessive bias towards retirement in many countries and usually leads to a complete elimination of the bias through the switch to the actuarially fair system. However, the positive approach comes in place in this topic to eliminate the bias, which might prove to be problematic while looking t it in the political perspective. Combination of the normative and positive approach Certain interdependence has been seen to exist between the normative and positive approach. The normative and positive approach can also be combined to form a policy statement (Seleshi 2006, p. 116). For example, one can choose to make a judgment on the goal that are desirable, which is the normative part and go about deciding ways of attaining these goals, which is the positive part. The combination of the normative and positive approach will ensure that the right policy is created or is followed. The normative and positive approached can be used together in achieving various objectives (Fulbier & Weller 2008, p. 351-382). The normative approach helps the business through the normative approach to make judgment on the economic goals that are desirable. The positive approach on the other hand will help in deciding how these goals will be attained. For instance, if the business establishes from the normative approach that the goal of the business is to minimize unemployment, the positive approach will be used to review on the current unemployment rates. It will also help in predicting on the various economic factors that could influence the employment figures. As Positive accountants hope to analyze economics, they base their findings on scientific basis while focusing on the issues that can be settled by evidence and observation. One of the major problems with the positive approach is that the major issues that exist are not simply a matter of evidence, as it needs interpretation. The need for interpretation is a key component, which falls under the normative actions. The use of both normative and positive approaches in this case will ensure that there is interpretation that will create space for the opinions and values (Fulbier & Weller 2008, p. 351-382). The positive approach is important as it provides conclusions that are to be considered are based on value judgments that emanates on what is bad or good (Joerges, Sand & Teubner 2004, p. 105). The positive approach provides conclusions, which are considered as being extensively applicable in the world as they are tested. For example, the positive approach can look at informing us on how the price system operates. The positive approach will thus take one along the road of positive economics. The positive approach can provide various findings such as “if the price of petrol increases the demand for petrol falls" which is a finding which can either be agreed or refuted. In addition, the normative and positive approach can intertwine when it comes to creation of government policies. For instance, the accountant who follows the normative approach can bring about the issue of whether the government should execute murderers. The economist who follow the positive approach also agree to the issue although they offer a change in the policies that would see stiffer, quicker and surer penalties that would deter the crime (Hyman 2008, p. 52). In conclusion, according to the accounting theory and the application of both approaches, I find the normative approach to be more preferable than the positive approach. This is because the normative approach offers prescriptive and value based approach to the issues. The normative approach even though it uses factual evidence to present its data, the data can at times not be factual. However, it incorporates the underlying opinions, standards and morals of the people who are using the normative approach. I addition, the normative approach is essential in accounting as it looks at what it ought to be. It is an approach that has both an ethical and moral component to it. In addition, rather than just the factual orientation, the normative approach also important in introducing a subjective orientation to the study. In addition, the positive theory on its own just merely embodies on the techniques used for analysis only. However, it can benefit exponentially from the normative approach by applying the normative guidelines, which look at the various areas of human interaction in carrying out its analysis. For this reason, the normative approach is seen a being useful to the positive approach as it helps in defining of the relevant issues. The normative approach is essential in accounting as it not only involves studying an economic situation and coming up with the solutions, it involves coming up with solutions that will cater for a certain perspective such as for the future. Bibliography Top of Form Alexander, D., Britton, A., & Jorissen, A. (2007). International financial reporting and analysis. London: Thomson Learning. P.148 Alhabeeb, M. J., & Moffitt, L. J. (2013). Managerial economics: A mathematical approach. Hoboken, N.J: Wiley. P.18 Bloom, R. (1994). The schism in accounting. Westport, Conn. u.a: Quorum Books. P.24 Boyes, W. J., & Melvin, M. (2009). Economics. Eagan, MN: South-Western Cengage Learning 6 Fulbier, R.U. & Weller, M., 2008. Normative accounting research on the sideline? Some scientific remarks. Journal for General Philosophy of Science, 39(2), p.351-382 Gwartney, J. D. (2009). Economics: Private and public choice. Australia: South-Western Cengage Learning. P. 15 Herman, D. (2002). 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