ECON 101 Lecture Notes - Lecture 2: Scientific Method, Opportunity Cost
Document Summary
Economists play two roles: scientists: try to explain the world, policy advisors: try to improve it. Economists employ the scientific method: the dispassionate development and testing of theories and about how the world works. Assumptions simplify the complex world, make it easier to understand: e. g. : to study international trade, assume two countries and two goods. Unrealistic, simple to learn and gives useful insights about the real world. Model: a highly-simplified representation of a more complicated reality: economics use models to study economic issues. Circular flow diagram: visual model of the economy, shows how dollars flow through markets among households and firms: two types of actors. The market for goods and services (output) The (cid:373)arket for (cid:862)factors of productio(cid:374)(cid:863) (cid:894)i(cid:374)put(cid:895) Factors of production: the resources the economy uses to produce goods and services including: labor, land, capital (building and machines used in production)