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2. Thinking like an economist.docx

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ECON 102
Maryann Vaughan

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Thinking like an economist January-09-13 2:30 PM Economists: 1. Scientists: explain the world 2. Policy advisors: try to improve it Scientific method - the dispassionate development and testing of theories about how the world works. Assumptions and Models  Assumptions simplify the complex world  Model: a simplified representation of the real world. Used to study economic issues The Circular-Flow Diagram  A visual model of the economy, showing how the dollars flow through markets among markets and firms  2 actors: o Households o Firms  2 markets o Market for goods/services o Market for factors of production  Resources used to produce goods and services  Land  Labour  Capital  Entrepreneurship Production Possibilities Frontier  Shows all the possible combinations that the economy can possibly produce goven the availabel resources and the available technology  2 goods  Reaources and tech are fixed Shape of the PPF  Could be a straight line or bow-shaped  Depends on what happens to opportunity cost as economy shifts resources from one indus
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