ECN 102 Lecture Notes - Lecture 3: Scientific Method
Document Summary
Economist play two roles: scientist: try to explain the world, policy advisors: try to improve it. In the first, economist employs the scientific method, the dispassionate development and testing of theories about how the world works. Assumptions simplify the complex world, making it easier to understand. To study international trade assume that there are only two countries and two goods unrealistic, but simple to learn and gives insights about the real world. Model: a highly simplified representation of a more complicated reality. The circular-flow diagram: a visual model of the economy, shows how dollars flow through markets among households and firms. Two markets: the market for goods and services: in this market, households are buyers and firms are sellers. In this market, households buy the output of goods and services that firms produce: the market for factors of production : in the market, households are the sellers and firms are the buyers.