2 Chapter 2

2 Chapter 2 - Chapter 2: Thinking like an Economist Like...

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Chapter 2: Thinking like an Economist Like every field of study, economics has its own terminology supply v opportunity cost v elasticity v consumer surplus v demand v comparative advantage v deadweight loss Economics trains you to. . . . Think in terms of alternatives. Evaluate the cost of individual and social choices. Examine and understand how certain events and issues are related. The economic way of thinking . . . Involves thinking analytically and objectively. Makes use of the scientific method. Uses abstract models to help explain how a complex, real world operates. Develops theories, collects and analyzes data to evaluate the theories. Economists make appropriate assumptions and build simplified models in order to understand the world around them. The Scientific Method: Observation, Theory, and More Observation Uses abstract models to help explain how a complex, real world operates. Develops theories, collects and analyzes data to evaluate the theories. The Role of Assumptions Economists make assumptions in order to make the world easier to understand. The art in scientific thinking is deciding which assumptions to make. Economists use different assumptions to answer different questions. Economic Models Economists use models to simplify reality in order to improve our understanding of the world. Two of the most basic economic models are: The Circular Flow Diagram The Production Possibilities Frontier 1) Economists, like mathematicians, physicists, and psychologists, a. make use of the scientific method. b. make use of their own language. c. devise theories, and collect and analyze data. d. All of the above are correct. 2) With respect to how economists study the economy, which of the following statements is most accurate? a. Economists study the past, but they do not try to predict the future. b. Economists use “rules of thumb” to predict the future. c. Economists devise theories, collect data, and analyze the data to test the theories. 1
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d. Economists use controlled experiments in much the same way that biologists and physicists do. 3) Which of the following statements is true? a. Economists almost always find it easy to conduct experiments in order to test their theories. b. Economics is not a true science because economists are not usually allowed to conduct experiments to test their theories. c. Economics is a social science rather than a true science because it cannot employ the scientific method. d. Economists are usually not allowed to conduct experiments, and so they must rely on natural experiments offered by history. 4) Economists make assumptions in order to a. mimic the methodologies employed by other scientists. b. minimize the number of experiments that yield no useful data.
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2 Chapter 2 - Chapter 2: Thinking like an Economist Like...

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