MicroThinking like an Economist lecture

MicroThinking like an Economist lecture - Topic 2 Thinking...

Info iconThis preview shows pages 1–14. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Topic 2 Thinking like an Economist We will now look for the answers to these questions: What are models? How do economists use them? What are the elements of the Circular-Flow Diagram? What concepts does the 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? The Economist as Scientist s Economists play two roles: 1. Scientists: try to explain the world 2. Policy advisors: try to improve it s In the first, economists employ the scientific method , the dispassionate development and testing of theories about how the world works. Assumptions & Models s Assumptions simplify the complex world, make it easier to understand. s Example: To study international trade, assume two countries and two goods. Unrealistic, but simple to learn and gives useful insights about the real world. s Model : a highly simplified representation of a more complicated reality. Economists use models to study economic issues. Some Familiar Models A road map Some Familiar Models A model of human anatomy from high school biology class Some Familiar Models A model airplane Some Familiar Models The model teeth at the dentists office D o n t f o r g e t t o f l o s s ! Our First Model: The Circular-Flow Diagram s The Circular-Flow Diagram : a visual model of the economy, shows how dollars flow through markets among households and firms s Two types of actors: s households s firms s Two markets: s the market for goods and services s the market for factors of production Factors of Production s Factors of production : the resources the economy uses to produce goods & services, including s labor s land s capital (buildings & machines used in production) FIGURE 1: The Circular-Flow Diagram Households : s Own the factors of production, sell/rent them to firms for income s Buy and consume goods & services Households : s Own the factors of production, sell/rent them to firms for income s Buy and consume goods & services Firms : s Buy/hire factors of production, use them to produce goods and services s Sell goods & services Firms : s Buy/hire factors of production, use them to produce goods and services s Sell goods & services FIGURE 1: The Circular-Flow Diagram Markets for Factors of Production Income Wages, rent, profit Factors of production Labor, land, capital Spending G & S bought G & S sold Revenue 11 Our Second Model: The Production Possibilities Frontier s The Production Possibilities Frontier (PPF) : a graph that shows the combinations of two goods the economy can possibly produce given the available resources and the available...
View Full Document

This note was uploaded on 11/09/2011 for the course ECO 6789 taught by Professor Hu during the Spring '11 term at Campbell.

Page1 / 37

MicroThinking like an Economist lecture - Topic 2 Thinking...

This preview shows document pages 1 - 14. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online