M2 - Chapter 2: Thinking like an Economist Principles of...

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Chapter 2: Thinking like an Economist Principles of Economics, 5th Edition N. Gregory Mankiw Page 1 1. Every field has its own language and its own way of thinking. a. The single most important purpose of this book ( course ) is to help you learn the economist’s way of thinking. 2. The Economist as Scientist a. Economists try to address their subject with a scientist’s objectivity. b. The scientific method: observation, theory, and more observation. i. Because it is a social science, economists have less control over their data than natural scientists. ii. While teaching, economists attempt to use historical examples. iii. In research, economists attempt to correct for other forces. c. The role of assumptions i. Assumptions can simplify the complex world and make it easier to understand. ii. Assumptions can vary based on the question being asked. (1) It is reasonable to assume prices are sticky in the short run, while assuming that they are flexible in the long run. iii. Theories are judged by their results rather than the realism of their assumptions. d. Economic models i. Economists use models to learn about and illustrate the world. ii. These models are most often composed of diagrams and equations. iii. Our first model: The circular flow diagram is a visual model of the economy that shows how dollars flow through markets among households and firms. P. 24 (1) There are two types of decision makers: firms and households (2)
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M2 - Chapter 2: Thinking like an Economist Principles of...

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