
Positive vs. Normative Analysis
Positive = FACTS
Normative = OPINIONS
1. The government must take action in order to reduce the
unemployment rate. Normative
2. The unemployment rate is currently 5.3%. Positive
3. A reduction in income tax will improve the incentives of the
unemployed to find work. Positive
4. Cold temperatures are proven to increase the sales of winter mittens.
Positive
5. It is unfair that more of the government funding is spent on pensions
than welfare. Normative

Different Types of Economies
1. Traditional
Pros:
Cons:
Example:
2. Command
Pros:
Cons:
Example:
3. Market
Pros:
Cons:
Example:
4. Mixed
Pros:
Cons:
Example:
Chapter 1 terms: individual choice, opportunity cost, trade-off, marginal
decision, marginal analysis, incentive, equilibrium, efficient, equity

Production Possibility Frontier
Boats
Planes
^^^ this is a graph.
Production Possibility Frontier is a way to measure how many products an economy can make using it’s
resources efficiently. Say an economy sells 2 products (planes and boats) and wants to find how many of
each it can make using all of its resources. A situation on the line is efficient (because we are using all of
our resources. A situation below the line is inefficient because it is possible but we are using less than all
of our resources. And a situation above the line is impossible because we do not have enough resources.
Traditional
Market
A system where the people produce
products and services that are a direct
result of their beliefs
Government does not control any major
segment of the economy (resources,
valuable goods, etc). Organizations run
by the people determine how the
economy runs, what demands are
necessary, etc.
Advantages: minimal waste, traditions
and customs are preserved, each member
has a more specific and pronounced role,
societies are usually close-knit
Disadvantage: do not have luxuries other
economies take for granted (western
medicine, utilities, technology, etc)
Advantages: government cannot be too
powerful
Disadvantage: no central power to
implement regulations and agendas.
Controlled (Socialism)
Large part of economic system is
controlled by a central power. Usually
happens when economy has a large
supply of a natural resource (ex: gas,
diamonds, etc). Government owns
everything involved in industrial process.
But, farming and everything nonindustrial is run by the people.
Advantages: capable of creating a healthy
supply of its own resources, no job
shortage
Disadvantage: causes unrest in the
citizens
Mixed
It is a mixture of market and command
economy. Many variations exist. Usually
governments control programs such as
education, transportation, mail, etc.
Advantages: there is a medium amount of
control, there are rules but not as much
oppression typically
Disadvantages: it’s hard to balance
government control with flexibility,
constant pressure in control vs. flexibility