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?
The PPF is a curve that shows the number of x units can be produced if they require the same resources. Looking at the PPF can help with understanding the economy by finding the most efficient amount of each unit to produce. It also shows how we face tradeoffs when producing items that require the same resources. If you want more of one item, the tradeoff will be that you then will produce less of the other item. It can also be used for business determining how much to produce of each item to maximize their sales.
2. The buy local movement is fairly strong in Colorado. How can you think about it in terms of the PPF? Watch this video: http://www.mruniversity.com/courses/everyday-economics/buy-local-movement-shop-small-business (Links to an external site.) How do his arguments relate to economic efficiency?
The PPF could be used by a local business to see what products they might want to get locally and which they would not get locally. A winery in Palisade might use their local grapes, but outsource for the glasses bottles needed to bottle the wine. They could use the PPF to see what would be the most efficient route when trying to “stay local.” This argument relates to economic efficiency because it will not always be efficient for a local store or business to get everything locally. To be as efficient as they can be, they might have to get products that are not local or even from outside of the country.
3. Give an example of a positive or normative statement about the economy. Why does it matter which it is? (If you happen to have a favorite example of a politician or political candidate confusing the two include it here. :^))
The unemployment rate in the United States is currently 3.7%
The unemployment rate should never be above 10%
The importance of whether a statement is a positive or normative statement is very important. People may hear a normative statement and belief it is a factual statement when it is not. Knowing the difference between the two types of statements is very important. Many politicians will make normative statements that people then believe right away and are not fact based statements.
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