A COM 265X Study Guide - Midterm Guide: Supreme Headquarters Allied Powers Europe, Model Aircraft, Opportunity Cost
Document Summary
A dispassionate development + testing of theories about how world works. Assumptions simplify the complex world + make it easier to understand. Ex: to study international trade, economists assume world consists of 2 countries and that each country produces 2 goods. Unrealistic, but simple to learn + gives useful insights about real world. Model: a highly simplified representation of a more complicated reality. Economists use models to study economic issues. Model of human anatomy from hs bio class. Economists need model that explains how economy is organized + how participants in the economy interact w/ one another. Circular-flow diagram: visual model of the economy that shows how dollars flow through markets among households and firms. In this model, economy simplified to include only 2 types of decision makers (firms + Two markets: goods & services market + market for factors of production . Factors of production: resources economy uses to produce goods & services including:
