Chapter 2: How to Think Like an Economist Flashcards
What do economists do?
Research economic issues related to education, the labor force, international trade, and other topics.
What is a theory?
A theory is a simplified representation of how two or more variables interact. The purpose of a theory is to take a complex, real-world issue and simplify it to its essentials.
What term do economists use instead of theory?
Model
What is the circular flow diagram?
The circular flow diagram is a basic model used in economics to show how an economy functions. Primarily, it looks at the way money, goods, and services move throughout the economy.
What is the Production Possibilities Frontier (PPF)?
It graphs the number of goods that an economy can possibly produce given available resources.
Capital
the physical or financial resources used to produce value in an economy
Slope
Change in vertical distance/change in horizontal distance
What are factors of production
land, labor, capital and entrepreneurship
What is the main goal of economic thinking?
To help understand economic perspectives for better decision-making.
How do economists approach problems?
Systematically, using the scientific method: observation, theory development, data collection, and theory testing.
Why do economists make assumptions in their analysis?
To simplify reality and focus on relevant factors.
What is an economic model?
A simplified representation of reality that helps understand complex systems.
What is a trade-off in economics?
Producing more of one good means producing less of another.
Define opportunity cost.
The cost of one good in terms of the other good given up.
What do points on the PPF represent?
Maximum efficiency; points inside the curve indicate inefficiency.
