Topic 2- Thinking Like an Economist

Question 1

The scientifice method

Answer 1

Observation, theory and repeat

Question 2

How do Economists gather data, AND HOW DO THEY ANSWER DIFFERENT QUESTIONS, and how they present their findings

Answer 2

SCIENTIFIC METHOD

making assumptions

Economic models

Question 3

How easy is it to conduct experiments in economics

Answer 3

Difficult bc hard to control

Question 4

Economic models
-depiction of reality?
-details?
-what are they built with

Answer 4

-simplifications of reality
-omit details to allows focus
-are built with assumptions

Question 5

3 features of economic models

Answer 5

1. assumptions and simplifications
2. form and test hypotheses with DATA
3. Economic variables such as wages quantitites

Question 6

How to calculat slope

Answer 6

DELTA Y/ DELTA X

RISE/RUN

Question 7

How to get the slope of a curve

Answer 7

MEASURE SLOPE of the tangent line to the curve at that point!

-measure like any other straight line

Question 8

the circular flow diagram
-what is it?

Answer 8

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

Question 9

Two types of markets in circular flow diagram

Answer 9

Product market: markets for g/s
Factor markets: markets for FACTORS OF PRODUCTION (inputs for g/s labour capital natural land entrepreneurs)

Question 10

What is the circular flow diagram missing?

Answer 10

No governemnt
No financial systems
-NO FDI OR INTERNATIONAL ORGA

Question 11

2 types of economic models

Answer 11

Production possibilities forntier

Circular flow diagram

Question 12

Production POssibilities frontier
-Shows which relationships

-also what can it show?

Answer 12

SCARCITY CHOICE OPPORTUNITY COST

-shows maximum attaniable combinations of 2 prodcuts that economy can achieve given factors of production and avaible tech

Economic growth!!!

Question 13

What are assumptions along the PPF

Answer 13

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

Question 14

What do PPF models showcase

Answer 14

That economic players face trade offs

Question 15

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

Answer 15

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)

Question 16

PPF ALLOCATIVE EFFICIENCY BIG IDEA!!!!

Answer 16

The marginal benefit of the last unit of the production of a good or a
service is equal to marginal cost of producing it.

Question 17

wHAT DOES the slope of the ppf tell you

Answer 17

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

Question 18

Shapes of PPF

Answer 18

1. Straight line when 1:1 ratio
2. curved when one good produced is worth more than another

Question 19

Curved PPF, why is it not linear decline?

Answer 19

As economy moved down PPF, experiences increasing mariganl oportunity costs!!

Why? bc some resources are better used to one good production than another

Question 20

How is economic growth shown on the PPF?

Answer 20

The shftin gin the frontier! from low to higher!

Not necessarily all of the growth has to happen at once, but something moves outwards

Question 21

Economic growth

Answer 21

increase in the ability of the economy to produce g/s

Question 22

What causes shifts in PPF

Answer 22

ECONOMIC GROWTH:
Causes-
1, tech deveopments, affecting one goods production at a time
2. More labours
3. more land

Question 23

Positive Analysis

Answer 23

Relying on facts or LOGIC! describing world as it is

Question 24

Normative analysis

Answer 24

Value judgements (how would should be)

Question 25

Positive statements can be —-, normative statments cannot

Answer 25

confirmed or refuted!

Question 26

Which two groups partcipate in markets and HOW

Answer 26

Households: Supply FOPS
Firms: Supply G/S

Question 27

What are the two types of markets

Answer 27

Factor Markets: Households sell, Firms demand

Product Markets: Firms sell, Households demad

Question 28

Circular diagram visual

Answer 28

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

Question 29

How could a point below PPF exist (Reason?)

Answer 29

WIDESPREAD UNEMPLOYMENT

Question 30

What is the opportunity cost on the PPF

Answer 30

THe slope

Question 31

What is economic model useful for

Answer 31

Describing and predicting how the world works

Question 32

Economic variables

Answer 32

Dependant Variable
Independant Variable

Question 33

Dependant Variable

Answer 33

Variable that is being explained

y

Question 34

Independant Variable

Answer 34

Variable that explains the other variable

x