1. Chapter 2 Flashcards
Why is it hard for economists to perform experiments?
Because unlike physicists who can drop a ball multiple times, economists cannot manipulate a nations monetary policy to get useful data
What do economists use instead of experiments for testing the long term and short term effects of the change of quantity of money?
Assumptions to see what change in money will result in what
What models do economists use to study the world?
They use diagrams and equations like a biology teachers plastic model of a heart
What is the circular flow diagram?
A visual model of the economy that shows how dollars flow through markets among households and firms
The first model
What are the two types of markets households and firms interact with?
Markets for goods and services- households are buyers and firms are sellers
Markets for the factors of production- households are the sellers and firms are the buyers
What is the production possibilities frontier?
A graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology
Graph of cars vs computers on page 23
These graphs often have a bowed out shape
When is an outcome considered efficient?
If the economy is getting all it can from the scarce resources it has available
What is microeconomics and macroeconomics?
Micro- the study of how households and firms make decisions and how hey interact in markets
Macro- the study of economy wide phenomena, including inflation, unemployment, and economic growth
What are positive statements compared to normative statements?
Positive- claims that attempt to describe the world as it is
“Minimum wage laws cause unemployment”
Negative- claims that attempt to prescribe how the world ought to be
“The government should raise to minim wage
Why are economists not always followed by governments and such?
The process by which economic policy is actually made differs in many ways from the idealized policy progress assumed in economic textbooks
There is also a long process after hearing an economist out like press and many other people have to go through it
Why do economists so often appear to give conflicting advice to policy makers?
- Economists may disagree about the validity of alternative positive theories about how the world works
- Economists may have different values and different normative views about what a policy should try to accomplish
What does feasible mean?
Something that is possible to do easily or conveniently
What are the foundation stones for which economics is built?
Assumptions
