Chapter 2 - Thinking like an Economist Flashcards
What are Economists trying to do?
Economists try to address their subject with a scientist’s objectivity.
What is the Scientific method?
The Scientific method involves observation, theory, and more observation.
Like scientists, economists use theory and observation like other scientists, although it is sometimes more challenging for economists because experiments are difficult to attest in economics.
What is the role of Assumption?
Assumption can simplify the complex world and make it easier to understand.
The art in scientific thinking is deciding which assumptions to make.
What are economic models and what are they used for?
Economists use models to learn about the world that are most often composed of diagrams and equations.
Economics models omit many details to allow us to see what is truly important. (the issue at hand or what is being described)
All economic models are built on assumptions.
The Circular-Flow Diagram?
A visual model of the economy that shows how dollars flow through markets among households and firms.
Refer to image “Circular Flow Diagram”.
The production possibilities Frontier?
A graph of output that the economy can possibly produce given the available factors of production and the available production technology.
Refer to image “Production possibilities Frontier Diagram”.
What happens when production or quantity changes in the market on the PPF?
A shift in the graph will occur and will result in a different product.
Refer to image “shift in PPF”.
What is the difference between Macroeconomics and Microeconomics?
Microeconomics - the study of how HOUSEHOLDS and FIRMS make decisions and how they interact in markets.
Macroeconomics - the study of how ECONOMY-WIDE phenomena, including inflation, unemployment, and economic growth.
Therefore, the difference is that microeconomics concerns smaller individuals VS. society/governments/populations interaction with bigger economic issues.
What is the difference between a Positive statement and a Normative Statement?
Positive Statement - claims that attempt to describe the world as it is.
Normative Statement - claims that attempt to prescribe how the world should be.
Ex: FACTS (Positive) vs. OPINIONS (Normative)
Why are economists’ advice not always followed?
Typically, any economist who advises a government to take a certain action knows that his or her recommendations are not always heeded.
Also because every economists have different values and therefore results in many debates and disagreements in the right action. This emphasizes the importance of figuring out the right policy.
