Chapter 2 Reflection
- 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?
Production Possibility frontier shows us that there are limits to production, so an economy , to achieve efficiency, must decide what combination of goods and services.
“ In Order for this economy to produce more wine, it must give up some of the resources it is currently using to produce cotton (point A). If the economy starts producing more cotton (represented by points B and C), it will need to divert resources from making wine and, consequently, it will produce less wine than it is producing at point A. As the figure shows, by moving production from point A to B, the economy must decrease wine production by a small amount in comparison to the increase in cotton output. However, if the economy moves from point B to C, wine output will be significantly reduced while the increase in cotton will be quite small. Keep in mind that A, B, and C all represent the most efficient allocation of resources for the economy; the nation must decide how to achieve the PPF and which combination to use
- 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?
I have always gone to local stores. But watching this video I can see where if it is just produced and everything was done locally it would not really help our community. Not many business can survive just on local business. We shrink specialization which makes people less productive. Trading helps what keeps the business running and being able to get products cheaper as well.
- 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. :^))
Normative statement: Social security is a good system and it deserves to be set as is. Gas prices should be lower than they are right now.
Positive Statement: When the minimum wage is increased , unemployment is a predictable consequence.
Work Cited
https://www.investopedia.com/terms/p/productionpossibilityfrontier.asp
https://mru.org/courses/everyday-economics/buy-local-movement-shop-small-business
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