Chapter Two

Chapter Two - PRINCIPLES of MICROECONOMICS by N. Gregory...

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PRINCIPLES of MICROECONOMICS by N. Gregory Mankiw (4 th Edition) Chapter Two Outline CHAPTER 2: THINKING LIKE AN ECONOMIST The Economist as a Scientist - Economists try to address their subject with a scientists objectivity - Essence of science = scientific method o Scientific method – the dispassionate development and testing of theories about how the world works The Scientific Method: Observation, Theory, and More Observation - Interplay between theory and observation occurs in economics - Experiments difficult in economics - Substitute for laboratory experiments = natural experiments offered by history The Role of Assumptions - Assumptions can simplify the complex world and make it easier to understand - Art in scientific thinking is deciding which assumption to make Economic Models - Models built with assumptions - Use models to learn about the world - Composed of diagrams/equations Our First Model: The Circular-Flow Diagram - Circular-Flow Diagram – A visual model of the economy that shows how dollars flow
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Chapter Two - PRINCIPLES of MICROECONOMICS by N. Gregory...

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