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