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Chapter 2 HMWK

  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. 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.)Links to an external site.  How do his arguments relate to economic efficiency?
  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. :^))




A simplified model of the economy helps to see the basic dynamics that are at play, which can then be translated to a larger group of people. The production possibilities frontier helps illustrate how specialization can pay off for everyone involved.

If we lived in a place where everything we consumed was 100% local, it would shrink our options and raise the prices and decrease cash flow. It would take months to produce a shirt because only a few people would have the skills and interest to gather and process the fiber, weave the cloth, develop a pattern, and sew the garment. How much would you need to charge to cover the time spent at that project? And once all your neighbors have enough shirts, who will you sell to? You'd have to wait until it wore out or they outgrew the size. It is because of global specialization that we can be most efficient.

An example of a positive statement about the economy is, "the minimum wage in Colorado is $10.20". A normative statement about the economy is "the minimum wage should be raised". One describes facts, and the other is based on subjective values.

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