- 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? Did you find it useful?
The use of a simplified model the economy such as the production possibilities frontier helps me to understand the economy by providing a very basic standard that can be used when evaluating the combinations of output for production. The curved line establishes a basis and anything to the left of the line is a possibility and anything right of the line is not a possibility. I found this very useful as it simplified the idea of production possibilities. - Give an example of something you believed or heard frequently about the economy before reading this chapter. Did your belief/the comments lead to positive or normative statements? Why? And why does it matter? An example of this that is in the news a lot is international trade – we hear it talked about in terms of winners and losers, but when you make a trade with your local grocery store you both win. In fact, trades don’t occur unless both the buyer and the seller “win”. For other economic “myths” just google “economic myths”.
I think with the recent elections a statement I have heard from the Bernie Sanders campaign is in regards to healthcare and that governments should provide free healthcare to all citizens. This statement leads me to a normative statement because this is a claim about how the world ought to be. It matters because positive statements are descriptive and specific to how the world is. Normative statements are prescriptive about how the world should be. It is my understanding that both these factors are needed to help make economic changes from a scientific point and as policy advisers.
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Principles of Macroeconomics Spring 2020 