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Lecture 2

ECON 102 Lecture 2: ECON 102 - Chapter 2 Notes

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ECON 102
Karl Pinno

Friday, September 30, 2016 ECON 102 Chapter 2: Thinking Like an Economist Economists as Scientists •Economists try to address their subject with a scientist’s objectivity. The Scientific Method • The scientific method involves observation, theory, and more observation. • Economists use theory and observation like other scientists, but they do face an obstacle that makes their task especially challenging: Experiments are often difficult in economics. The Role of Assumptions • Assumptions can simplify the complex world and make it easier to understand. • The art in scientific thinking is deciding which assumptions to make. Economic Models • Economists also use models to learn about the world that are most often composed of diagrams and equations. • Economic models omit many details to allow us to see what is truly important. All the models are built with assumptions. The Circular-Flow Diagram Two Types of Economic Diagrams: 1. Circular-Flow Diagram: a visual model of the economy that shows how dollars flow through markets among households and firms 1 Friday, September 30, 2016 2. The Production Possibility Frontier(PPF): 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 Microeconomics and Macroeconomics Microeconomics: the study of how households and firms make decisions and how they interact in markets Macroeconomics: the study of economy-wide phenomena, including inflation, unemployment, and economic growth • Microeconomists might study the effects of rent control on housing in Toronto, the impact of foreign competition on the Canadian auto indu
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