Chapter 2 Notes

Chapter 2 Notes - Chapter 2 (2/13/08) The economist as...

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Chapter 2 (2/13/08) The economist as scientist - Economists play two roles: Scientists: try to explain the world. Policy advisors: try to improve it. - In the first, economists employ the scientific method. Testing theories in the world and seeing how it works. Assumptions and models - Assumptions simplify the complex world, make it easier to understand. Example: To study international trade, assume two countries and two goods. Unrealistic, but simple to learn and gives useful insighs about the real world. - Economists use models to study the world. The circular-flow diagram - A visual model of the economy; shows how dollars flow through markets among households and firms. - Has two types of “actors” Households Firms - Has two markets: The market for goods and services The market for “factors of production” - Factors of production: The resources the economy uses to produce goods and services including Labor Land
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Chapter 2 Notes - Chapter 2 (2/13/08) The economist as...

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