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Unformatted text preview: Scientists: try to explain the world a. Policy advisors: try to improve it b. Economists play two roles: 1) In the first, economists employ the scientific method: the dispassionate development and testing of theories about how the world works 2) The Economist as Scientist A. Assumptions simplify the complex world, make it easier to understand 1) Ex: to study international trade, assume two countries and to goods 2) Unrealistic, but simple to learn and gives useful insights about the real world 3) Model: a highly simplified representation of a more complicate reality 4) Economists use models to study economic issues 5) The circular- flow diagram: a visual model of the economy, shows how dollars flow through markets among households and firms i. Households (supplier and demander) a) Firms (supplier and demander) b) Two types of "actors": ii. The market for goods and services a) The market for "factors of production" (or inputs) b) Two markets: iii. The Circular- Flow Diagram a. Factors of production [input] : land, labor and capital [buildings and machines used in production plus intellectual capital/ideas/ knowledge]: the resources the economy uses to produce goods and services b....
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- Spring '08