101_03 - Households buy MARKETS FOR GOODS & SERVICES...

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Basic Concepts Continued (Chapter 2) 1- Economics as a Science 2- Tools of Analysis 3- Positive vs. Normative Economics 4- Circular Flow Diagram 5- Psychological Basis of Value and Wealth
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Economic Science: Knowledge, Observation, Analysis Analysis: Real World ==> Observations ==> Theory ==> Collect Data and Test the Theory Examples: Law of One price, Dutch Disease
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Economics trains you to. . . . 1- Think in terms of alternatives. 2- Evaluate the cost of individual and social choices. 3- Examine and understand how certain events and issues are related.
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Positive vs. Normative Analysis: Positive Statements are descriptive (how things are) and can be proved or disproved. For Example, gas (petroleum) prices increased by 30%. Normative Statements are opinions about how things ought to be. Foe example, Taxes should be lowered or poverty should be eradicated.
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Circular Flow Diagram •Firms sell
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Unformatted text preview: Households buy MARKETS FOR GOODS & SERVICES Households sell Firms buy MARKETS FOR FACTORS OF PRODUCTION Buy and consume goods and services Own and sell factors of production HOUSEHOLDS FIRMS Produce and sell goods and services Hire and use factors of production Goods and services sold Revenue Factors of production Wages, rent, and profit Spending Goods and services bought Labor, land, and capital Income Firms Produce and sell goods and services Hire and use factors of production Households Buy and consume goods and services Own and sell factors of production Markets for Goods and Services Firms sell Households buy Markets for Factors of Production Households sell Firms buy ******************************* Psychological basis of Value & Wealth: Painting example Stock Market Connections (Bubbles)...
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This note was uploaded on 04/02/2008 for the course ECON 101 taught by Professor Dezhbakhsh during the Fall '07 term at Emory.

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101_03 - Households buy MARKETS FOR GOODS & SERVICES...

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