Chapter 2 Reflections- Thinking Like an Economist

1. How does the use of a very simplified model of the economy such as those found in a production possibilities frontier help you to understand the economy?
2. Give an example of a positive or normative statement about the economy.  Why does it matter which it is?

The production possibilities frontier: 
This is a graph that shows the combinations of output that the economy can possibly produce given  the available factors of production and the available production technology.

We'll use the example from the book. Let's say that Product A is the number of computers produced and that Product B is the quantity of cars produced. If an economy puts all of its resources into only Product A (computers) then there will be no cars manufactured. Same thing with Product B (computers). If an economy puts all of its resources into only making computers then no cars will be made.

Each point (A, B, and C) represent the factors of production: At point A, an economy can produce X number of Product A and X number of Product B. 

Points outside the PPF (point Y, in this case) represent a point at which nothing will be produced because of the lack of economic resources or other factors. 

If the points are on the PPF (points A, B, and C) this shows that production is efficient. 

Point X shows inefficiency. Resources are NOT being used to produce the most that they could. 

Now, for the positive or normative statement about the economy...

First, I will define which each statement means. 

Positive Statements: They describe; They make a claim about what the world IS. Statements can be backed up with facts. 

Normative Statements: They are prescriptive; They make a claim about how the world OUGHT TO BE. Statements are opinion and do not have to be backed up with facts. 

"The welfare system should be limited to those desperately in need for a certain amount of time, not a lifetime."

This statement is normative. This is merely my opinion and there are several factors that need to be looked at before any changes would be made. While I could back this statement up with many ideas of why I think this statement is true, I cannot point to ONE piece of data that makes it true.