ECON-101 Lecture Notes - Lecture 2: Economic Model
18 Mar 2016
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Document Summary
Economists solve real world problems with a model. Economists make hypothesis and then device a model to either prove or disprove the hypothesis. The economists try to address their subject with a scientist objectivity. Economists use theory and observation just like scientists but they do face an obstacle that makes their task especially challenging. Models: models let us attempt, before trying it out in real life: objective, assumptions, solution. Economic model ex: maps, diagrams, solutions economic models omit many details to allow us to see what is truly important. Shows how money flows through households and firms. Our second model: the production possiibilities model frontier. Shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology. (see diagrams: security, efficiency. Positive statements claims that attempt to describe the world as it is. Normative statements are claims that attempt to prescribe how the world should be ex.
