How does the use of a very simplified model of the economy such as those found in a production possibilities frontier help you understand the economy?
The production possibilities frontier helps to understand economy by telling whether or not the economy is getting all it can from the scarce resources available.
Points A, B, and C, on the orange line, represent the production possibility frontier where the economy is getting all it can from the resources available. Point X represents inefficient outcome, which could be for the reason of high unemployment.
Give an example of a positive or normative statement about the economy. Why does it matter which it is?
"Raising the tax on beer will cause a fall of profits for its brewers." This is a positive statement that can be proven true or false by evidence or conducting tests. A normative statement carries value judgement.
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