Chapter 2

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 is a graphic representation of how much of a certain output can be manufactured based on our scare limited resources without taking away from the production of another good or service.  The key economic principle here is efficiency.  For all points on the graph curve, these are outputs that are produced most efficiently.  Points inside the graph are those that are able to be produced, but at the expense of being efficient and the points outside the graph are those that are unable to be produced given either the factors of production or available production technology.  This is helpful in understanding how the economy works because it make it easy to see that not all desirable outcomes are possible.  It can also improve productivity by showing those outputs that fall as points inside the graph curve as areas to improve upon by highlighting that in addition to being possible can also enhanced by implementing efficient techniques.

Positive statement:  "The welfare system induces unemployment."
Normative statement: "New standards should be set to receive welfare."

The difference is that positive statements are the "is" and normative statements are the "should be".  The difference between the two matter because as the text explains, positive statements are more easily confirmed or denied through research and/or experimentation.  Whereas normative statements are subjective and take into consideration that of the speaker's values.  Both statements are valid, but positive one's are from a more scientific perspective and normative one's are more from an ethical perspective.  I gather from this chapter so far that this is the reason why economic decisions are difficult to come by.