Chapter 2 - Alexander Gainer PDF

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Alexander Gainer...

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Chapter 2 ECON 101

How to Think Like an Economist

Economists are Scientists examine the world in a dispassionate systemic way In what way is a chemist and physicist and economist similar create theories collect data examine the data to confirm or reject their theory use the scientific method of inquiry when attempting to understand the world

The Scientific Method theory, observation, data

The Role of Assumptions simplifying shit to make things understandable a critical role for economists to make assumptions ex. fair trade

Economic Models simplified representation of a complicated reality graphs The two economic models Circular flow diagram

represents how goods, services, and money move through our economy inputs = factor of production When economists use the word "capital" we are referring to anything human-made that is used to produce a good or service goods and services - households are buyers and businesses are sellers.

factors for production - businesses are buyers and households are sellers.

The Production Possibilities Frontiers a graph that shows the possible combinations of two goods that can be produced given the current technology and available factors of production. The production possibilities frontier simplifies a complicated economy to allow us to better understand some essential ideas: trade-offs, opportunity cost, scarcity, efficiency, and economic growth.

A curve illustrating the varying amounts of two products that can be produced when both depend on the same finite resources. A PPF shows all the possible combinations of two goods, or two options available at one point in time. The PPF demonstrates that the production of one commodity may increase only if the production of the other commodity decreases With the available resources and technology, the economy can produce at any point inside or on the production possibilities frontier; however, it cannot produce at points outside the production possibilities frontier.

Opportunity cost can be illustrated by using production possibility frontiers The production possibilities frontier shows us the opportunity cost of producing one good, in terms of the other good The production possibilities frontiers in the real world are often bowed outward because opportunity costs are rarely constant

Microeconomics focuses on the actions of individual decision-makers, such as households and businesses Macroeconomics examines the economy as a whole, including unemployment, inflation, and economic growth

Calculating Slope

 Pick two points on the line anddeterminetheir coordinates.  Determinethe difference in y-coordinates of these two points (rise).  Determinethe difference in x-coordinates for these two points (run).  Divide the difference in y-coordinates by the difference in x-coordinates (rise/run orslope).

Positive vs Normative Analysis

Positive statements attempt to describe how the world actually works. They are descriptive statements Normative statements make suggestions about how the world should work. These statements are prescriptive and recommend how the world ought to be. whats one way to distinguish between the two statements evaluate their validity positive statements, we should be able to create a test to prove whether the statement is true or false. we cannot test normative statements since they also involve values

Economists in the real world policy advisors in health care help decide the allocation of money protecting the environment tech sector advice for governments and policies labour policies deal with incentives around health care, environment

Why economists disagree One reason for this is that the media tends to exaggerate the actual differences in views among economists difference in values - different normative views difference in the validity of positive theories different models...