Chapter 2 Thinking Like an Economist

Chapter 2 Thinking Like an Economist - production...

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circular-flow diagram A v isual model of the economy that shows how dollars flow through markets among households and firms. macroeconomics The study of economy-wide phenomena, including inflation, unemployment, and economic growth. microeconomics The study of how households and firms make decisions and how they interact in markets. normative statements Claims that attempt to prescribe how the world should be. positive statements Claims that attempt to describe the world as it is. production possibilities frontier A graph that shows the combinations of output that the economy can possibly produce giv en the available factors of production and the available production technology. Chapter Recap: Summary Economists try to address their subject with a scientist's objectivity. Like all scientists, they make appropriate assumptions and build simplified models to understand the world around them. Two simple economic models are the circular-flow diagram and the
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Unformatted text preview: production possibilities frontier. • The field of economics is divided into two subfields: microeconomics and macroeconomics. Microeconomists study decision making 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. • A positiv e 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 as scientists. • Economists who advise policymakers offer conflicting advice either because of differences in scientific judgments or because of differences in values. At other times, economists are united in the advice they offer, but policymakers may choose to ignore it. • Chapter 2: Thinking Like an Economist Tuesday, January 11, 2011 4:16 PM Microeconomics Page 1...
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