ECON 2020 Lecture Notes - Lecture 2: Econometrics, Scientific Method, Ceteris Paribus
Document Summary
Two types of economists: assumptions simplify the complex world, make it easier to understand, model: a highly-simplified representation of a more complicated reality, economists use model to study economic issues. Our first model: circular-flow diagram: visual model of economy, shows how money flows through markets among household/firms, two actors, household (individuals, firms (producers, two markets, goods/services, factors of production (land, labor, capital, revenue = price per quality (p*q) Second model: production possibilities frontier (ppf): graph that shows combinations of two goods the economy can possibly produce given the available resources/technology. Assume amount of resources are fixed ceteris paribus: all else equal or all else fixed. Under/over the ppf line may result in unemployment or extended labor hours. Recall: opportunity cost of item is what must be given up to obtain it. Therefore, opportunity cost of a computer is 10 tons of wheat. Why might it be bow-shaped: specialization.
