Chapter 2 Flashcards
What is the role of the economist
Economists play two main roles: as scientists and as policymakers.
explain the role of an economist as a scientist
As scientists, economists develop models to explain economic behavior and predict outcomes. They use these models to analyze data, test hypotheses, and understand economic trends.
explain the role of an econmist as a policymaker
As policymakers, they use their scientific knowledge to advise on economic policy decisions
What is the scientific method
The scientific method involves making observations, forming theories, and testing hypotheses.
How do the economist use the scientific method
Economists use this method to develop economic theories and test their validity. This process includes:
Observations: Noticing patterns and collecting data.
Theories: Developing explanations for observed phenomena.
Testing: Using data and experiments to validate or refute theories.
What is the role of assumptions
Assumptions simplify complex realities to make models manageable and useful.
How do economist use assumptions
Economists use assumptions to build models that abstract from the complexities of the real world. These assumptions are essential for developing clear and testable models.
Example: Assuming that people act rationally in economic models to simplify analysis.
What is positive economics
Describes and explains economic phenomena based on factual evidence. It answers questions about how the world works.
What is normative economics
Involves value judgments about what ought to be. It addresses questions about what should happen based on ethical considerations.
Provide an example of positive and normative economics
A positive economic question might be, “What is the impact of a minimum wage increase on unemployment?” A normative question might be, “Should the government raise the minimum wage?”
What is the role of the economic models in policy
Models help evaluate policy options and predict outcomes.
How do economists use models
Economists use models to analyze the effects of different policies, providing insights into potential consequences and guiding decision-making.
Example: Using a supply and demand model to evaluate the effects of imposing a price ceiling on goods.
What are models
Models are simplified representations of reality.
Why do economists construct models
Economists construct models to focus on specific aspects of the economy. These models use diagrams and mathematical equations to represent economic relationships and predict outcomes.
Example: The supply and demand model illustrates how prices are determined in a market.
What is the circular flow diagram
The Circular-Flow Diagram shows how money flows through the economy.
Description: This model illustrates the interactions between households and firms in two main markets:
The Goods and Services Market: Where firms sell goods and services to households.
The Factors of Production Market: Where households sell labor, capital, and land to firms.
Example: Households provide labor to firms, which in turn produce goods and services that households purchase.
What is the production possibilities frontier (PPF)
The PPF shows the trade-offs between two goods.
The PPF illustrates the maximum possible production of two goods given available resources. It helps visualize opportunity costs and the concept of efficiency.
Example: A PPF might show the trade-off between producing more guns or more butter in an economy.
Microeconmics and macroeconomics are
Microeconomics and macroeconomics are two branches of economics that focus on different levels of analysis.
What is Microeconomics
Microeconomics: Examines individual and firm-level decision-making and market outcomes.
Microeconomics might explore how a tax affects the price of a product
What is Macroeconomics
Macroeconomics: Studies economy-wide phenomena like inflation, unemployment, and economic growth.
macroeconomics might analyze the causes of a national recession.
what is the interconnection betwee Micro and Macro Economics
Microeconomic behaviors aggregate to macroeconomic outcomes.
Description: Individual decisions and market dynamics contribute to broader economic trends. Understanding microeconomics is essential for analyzing macroeconomic issues.
Example: Aggregate consumer spending (a microeconomic concept) affects overall economic growth (a macroeconomic concept).
Why is Economic literacy important
conomic literacy helps individuals make informed decisions.
Description: Understanding economic principles empowers people to engage in discussions about policy and make informed choices in their personal and professional lives.
Example: Knowledge of supply and demand helps consumers make better purchasing decisions.
Define Positive Economics
The branch of economics that deals with objective analysis of economic phenomena.
Define Normative economics
The branch of economics that involves value judgments and opinions about what ought to be.
Define the circular -flow diagram
A model showing the flow of goods, services, and money between households and firms.
Define the Production possiblities frontier
A graph showing the trade-offs between two goods that an economy can produce.
Define Microeconomics
The study of individual and firm-level economic behavior.
Define Macroeconmics
The study of economy-wide phenomena and issues.
Circular-flow diagram
a visual model of the economy that shows how dollars flow through markets among households and firms
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
Microeconomics
the study of how households and firms make decisions and how they interact in markets
Macroeconomics
the study of economy-wide phenomena, including inflation, unemployment, and economic growth
Positive statements
claims that attempt to describe the world as it is
Normative statements
claims that attempt to prescribe how the world should be
