Chapter 2 LEARNING OBJECTIVES: By the end of this chapter, students should understand: Ø how economists apply the methods of science. Ø how assumptions and models can shed light on the world. Ø two simple models—the circular flow and the production possibilities frontier. Ø the difference between microeconomics and macroeconomics. Ø the difference between positive and normative statements. THINKING LIKE AN ECONOMIST
Ø the role of economists in making policy. Ø why economists sometimes disagree with one another. CONTEXT AND PURPOSE: Chapter 2 is the second chapter in a three chapter section that serves as the introduction of the text. Chapter 1 introduced ten principles of economics that will be revisited throughout the text. Chapter 2 develops how economists approach problems while Chapter 3 will explain how individuals and countries gain from trade. The purpose of Chapter 2 is to familiarize students with how economists approach economic problems. With practice, they will learn how to approach similar problems in this dispassionate systematic way. They will see how economists employ the scientific method, the role of assumptions in model building, and the application of two specific economic models. Students will also learn the important distinction between two roles economists can play: as scientists when we try to explain the economic world and as policymakers when we try to improve it. KEY POINTS: 1. Economists try to address their subject with a scientist’s objectivity. Like all scientists, they make appropriate assumptions and build simplified models in order to understand the world around them. Two simple economic models are the circular-flow diagram and the production possibilities frontier. 2. The field of economics is divided into two subfields: microeconomics and macroeconomics. Microeconomists study decisionmaking by households and firms and the interaction among households and firms in the marketplace. Macroeconomists study the forces and trends that affect the economy as a whole. 3. A positive statement is an assertion about how the world is . A normative statement is an assertion about
how the world ought to be . When economists make normative statements, they are acting more as policy advisers than scientists.