CHAPTER 2: Thinking Like an Economist Flashcards
Economists try to address their subject with scientist’s objectivity.
The Economist as Scientist
a visual model of the economy that shows how dollars flow
through markets among households and firms
circular-flow diagram
the economy is simplified to include only two types of decision makers
firms and household
produce goods and services using inputs, such as labor, land, and capital (buildings and machines).
firms
Firms produce goods and services using inputs, such as labor, land, and capital (buildings and machines). These inputs are called the______
factors of production.
own the factors of production and consume all the goods and services that the firms produce
households
households and firms interact in two types of markets
- markets for good and services
- markets for the factors of production
In the markets for goods
and services, households are _____, and firms are _____. In particular, households buy the output of goods and services that firms produce.
- buyers
- sellers
In the markets for the factors of production, households are ______, and firms are _____. In these markets, households provide the inputs that firms use to produce goods and services.
- sellers
- buyers
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
production possibilities frontier
An outcome is said to be _____ if the economy is getting all it can from
the scarce resources it has available.
efficient
The cost of something is what you give up to get it.
opportunity cost
the study of how households and firms make decisions and how they interact in markets
microeconomics
the study of economy-wide phenomena including inflations, unemployment, and economic growth
macroeconomics
claims that attempt to describe the world as it is
positive statements
claims that attempt to describe how the world should be
normative statements
Why do economists so often appear to give conflicting advice to policymakers?
There are two basic reasons:
- Economists may disagree about the validity of alternative positive theories about how the world works.
- Economists may have different values and therefore different normative views about what government policy should aim to accomplish.
traces out the effect of a good’s price on the quantity of the good consumers want to buy.
demand curve
when the price increases and the quantity of demanded also increases
law of demand
when income decreases, the demand curve shifts to the ____
left
when income increases, the demand curve shifts to the ____
right
a line is the ratio of the vertical distance covered to the horizontal distance covered as we move along the line.
this definition is usually written out in mathematical symbols as follows:
slope
slope =delta y/delta x
