ECON 2304 Lecture Notes - Lecture 2: Scientific Method, Opportunity Cost, Positive Statement
27 Aug 2016
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Document Summary
Economists can be seen as scientists: economists plays two roles. Policy advisors: try to improve the world: economists use the scientific method. Scientific method development and testing of theories about how the world works. Assumptions & models: assumptions simplify the complex world. While unrealistic, it provides a simple way to learn and give useful insights about the real world: model highly simplified representation of a more complicated reality. Economists use models to study economic issues. Example of models: a road map. First model: circular-flow diagram: circular-flow diagram a visual model of the economy. Shows how dollar flows through markets between household and firms. Two types of roles: households, firms. Two markets: market for goods and services, market for factors of production. Factors of production: factors of production resources the economy uses to produce goods. Buy and consume goods & services: firms. Create products and services: households to firms. Sell products: household spends for goods and services.
