Topic 2- Thinking Like an Economist Flashcards
The scientifice method
Observation, theory and repeat
How do Economists gather data, AND HOW DO THEY ANSWER DIFFERENT QUESTIONS, and how they present their findings
SCIENTIFIC METHOD
making assumptions
Economic models
How easy is it to conduct experiments in economics
Difficult bc hard to control
Economic models
-depiction of reality?
-details?
-what are they built with
-simplifications of reality
-omit details to allows focus
-are built with assumptions
3 features of economic models
- assumptions and simplifications
- form and test hypotheses with DATA
- Economic variables such as wages quantitites
How to calculat slope
DELTA Y/ DELTA X
RISE/RUN
How to get the slope of a curve
MEASURE SLOPE of the tangent line to the curve at that point!
-measure like any other straight line
the circular flow diagram
-what is it?
an economic model that shows how dollars flow through market among households and firms
Households give FACTORS OF PRODUCTION to firms
-Firms provide G/S to households
Firms pay money to households for FACTORS OF PRODUCTION
-households pay money to firms for G/S
Two types of markets in circular flow diagram
Product market: markets for g/s
Factor markets: markets for FACTORS OF PRODUCTION (inputs for g/s labour capital natural land entrepreneurs)
What is the circular flow diagram missing?
No governemnt
No financial systems
-NO FDI OR INTERNATIONAL ORGA
2 types of economic models
Production possibilities forntier
Circular flow diagram
Production POssibilities frontier
-Shows which relationships
-also what can it show?
SCARCITY CHOICE OPPORTUNITY COST
-shows maximum attaniable combinations of 2 prodcuts that economy can achieve given factors of production and avaible tech
Economic growth!!!
What are assumptions along the PPF
Every point along the PPF is PRODUCTIVE EFFECIENCY!!! (max that can be produced given level of resources)
all FOP remain fixed
Tech doesnt change
econ produces 2 goods only
What do PPF models showcase
That economic players face trade offs
PPF:
-What are points along the PPF
-What are point inside the frontier?
-What are points outside the frontier
What is the best point on the PPF for consumers
Productive Efficiency (most amount of goods with least resources)
Feasible but inefficient usage of resources (Some wasted)
not feasible bc not enough resources
The one that creates allocative efficiency (when company makes the goods/services most valued by consumers)
PPF ALLOCATIVE EFFICIENCY BIG IDEA!!!!
The marginal benefit of the last unit of the production of a good or a
service is equal to marginal cost of producing it.
wHAT DOES the slope of the ppf tell you
The opportunity cost of one good in terms of the other!!!
Moving down the diagnoal line, the opporutnity cost of a Toyota is a Sedan; the opp cost of a pencil is 3 erasers
Shapes of PPF
- Straight line when 1:1 ratio
- curved when one good produced is worth more than another
Curved PPF, why is it not linear decline?
As economy moved down PPF, experiences increasing mariganl oportunity costs!!
Why? bc some resources are better used to one good production than another
How is economic growth shown on the PPF?
The shftin gin the frontier! from low to higher!
Not necessarily all of the growth has to happen at once, but something moves outwards
Economic growth
increase in the ability of the economy to produce g/s
What causes shifts in PPF
ECONOMIC GROWTH:
Causes-
1, tech deveopments, affecting one goods production at a time
2. More labours
3. more land
Positive Analysis
Relying on facts or LOGIC! describing world as it is
Normative analysis
Value judgements (how would should be)
Positive statements can be —-, normative statments cannot
confirmed or refuted!
Which two groups partcipate in markets and HOW
Households: Supply FOPS
Firms: Supply G/S
What are the two types of markets
Factor Markets: Households sell, Firms demand
Product Markets: Firms sell, Households demad
Circular diagram visual
4 SECTIONS:
FIRMS->Product Markets->Households->Factor Markets
Firms create G/S for Prod Market, Households buy G/S from prod market, Householdssupply FOP for Factor Market, Firms demand FOP from factor market
Households give revenue to Prod market, this is revenur for firms, this is wages/rent for factor market, this is income for hourseholds
How could a point below PPF exist (Reason?)
WIDESPREAD UNEMPLOYMENT
What is the opportunity cost on the PPF
THe slope
What is economic model useful for
Describing and predicting how the world works
Economic variables
Dependant Variable
Independant Variable
Dependant Variable
Variable that is being explained
y
Independant Variable
Variable that explains the other variable
x
