ECON 111 Lecture Notes - Lecture 2: Opportunity Cost, Free Trade, Sunscreen
Document Summary
Before delving into the substance and details of economics, it is helpful to have an overview of how economists approach the world. What does it mean to think like an economist: two roles: scientists and policy advisors. Economists try to address their subject with a scientist"s objectivity: scientific method: Developing a model or theory: cause and effect relationship. Assumptions can simplify the complex world and make it easier to understand. The circular-flow diagram: a visual model of the economy that shows how dollars flow through markets among households and firms. The production possibility frontier (ppf): a graph that shows the maximum combinations of output that the economy can possibly produce given the available factors of production and the available production technology. A country can produce two goods: donuts and aircrafts. There are two types of workers: bakers and engineers. If more resources are used to produce donuts, less aircrafts will be produced.