Chapter 2 -- Carlos Pitta

Chapter 2 Carlos - Chapter 2 Thinking as an Economist Instructor Carlos Pitta CHAPTER 2 THINKING LIKE AN ECONOMIST 1 Again What kind of questions

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CHAPTER 2 THINKING LIKE AN ECONOMIST 1 Chapter 2 Thinking as an Economist Instructor: Carlos Pitta
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CHAPTER 2 THINKING LIKE AN ECONOMIST 2 Again, What kind of questions will you be able to answer after reading this chapter? What are economists’ two roles? How do they differ? What are models? How do economists use models? What are the elements of the Circular-Flow Diagram? What concepts does this diagram illustrate? How is the Production Possibilities Frontier related to opportunity cost? What other concepts does it illustrate? What is the difference between microeconomics and macroeconomics? Between positive and normative?
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CHAPTER 2 THINKING LIKE AN ECONOMIST 3 The Economist as Scientist Economists play two roles: Scientists: try to explain the world Policy advisors: try to improve it In the first role, economists employ the scientific method : the dispassionate development and testing of theories about how the world works.
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CHAPTER 2 THINKING LIKE AN ECONOMIST 4 Assumptions & Models Assumptions simplify the complex world, make it easier to understand. Example: When studying international trade, we might assume the world consists of two countries and two goods. Very unrealistic, but simplifies the problem and yields useful insights about the more complicated real world. Economists use models to study economic issues. A model is a highly simplified representation of a more complicated reality.
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CHAPTER 2 THINKING LIKE AN ECONOMIST 5 Some Familiar Models A road map
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CHAPTER 2 THINKING LIKE AN ECONOMIST 6 Some Familiar Models A model of human anatomy from high school biology class
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CHAPTER 2 THINKING LIKE AN ECONOMIST 7 Some Familiar Models A model airplane
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CHAPTER 2 THINKING LIKE AN ECONOMIST 8 Some Familiar Models The model teeth at the dentist’s office Don’t forget to  floss!
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CHAPTER 2 THINKING LIKE AN ECONOMIST 9 Our First Model:   The Circular-Flow Diagram The Circular-Flow Diagram : A visual model of the economy, shows how dollars flow through markets among households and firms. Includes two types of “actors”: households firms Includes two markets: the market for goods and services the market for “factors of production”
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CHAPTER 2 THINKING LIKE AN ECONOMIST 10 Factors of Production The factors of production are the resources that the economy uses to produce goods & services. They include: labor land capital (buildings & machines used in production)
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CHAPTER 2 THINKING LIKE AN ECONOMIST 11 FIGURE 1:    The Circular-Flow Diagram Households : own the factors of production, sell/rent them to firms for income buy and consume goods & services Households Firms
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CHAPTER 2 THINKING LIKE AN ECONOMIST 12 FIGURE 1:    The Circular-Flow Diagram Households Firms Firms : buy/hire factors of production, use them to produce goods and services sell goods & services
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CHAPTER 2 THINKING LIKE AN ECONOMIST 13 FIGURE 1:    The Circular-Flow Diagram Markets for
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This note was uploaded on 01/10/2011 for the course AEB 2514 taught by Professor Evandrummond during the Spring '09 term at University of Florida.

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Chapter 2 Carlos - Chapter 2 Thinking as an Economist Instructor Carlos Pitta CHAPTER 2 THINKING LIKE AN ECONOMIST 1 Again What kind of questions

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