ECO 120 Lecture Notes - Lecture 26: Root Mean Square, Microeconomics, Planned Economy
Document Summary
Economists play two roles: scientists: try to explain the world, policy advisors: try to improve the world. The economist as scientists: scienti c method, dispassionate development and testing of theories about how the world works, observation. Assumptions and models: assumptions: simplify the complex world, make it easier to understand, ex: to study international trade, assume two countries and two goods. The market for good and services (consumer products) The market for factors of production : labor, land, capital (buildings and machines used in production) Own the factors of production, sell/ rent them to rms for income. Buy/hire factor of production, use them to produce goods and services. Sell goods and services: the production possibilities frontier (ppf), the combinations of outputs that the economy can possibly produce, assumptions: Technical ef ciency- factors are used in technically ef cient manner: concepts illustrated by the production possibility frontier. Why the ppf might be bow-shaped: bowed outward production possibilities frontier.
