ECON 2304 Lecture Notes - Lecture 3: Scientific Method, Microeconomics, Opportunity Cost

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Chapter 2: thinking like an economist (day 1) Economists play two roles: scientists: try to explain the world, policy advisors: try to improve it. In the first, economists employ the scientific method, the dispassionate development and testing of theories about how the world works. Observe the world, collect data, and test theory. Assumptions simplify the complex world, make it easier to understand. Example: to study international trade, assume two countries and two goods. Unrealistic, but simple to learn and gives useful insights about the real world. Model: a highly simplified representation of a more complicated reality. Economists use models to study economic issues. Assumption model: education, labor demand, job competition, economy (boom or recession) wage = education + (e) Many things affect wage but main focus is on education. The circular-flow diagram: a visual model of the economy, shows how dollars flow through markets among households and firms.

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