ECN 204 Chapter Notes - Chapter 2: Opportunity Cost, Scientific Method

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In this chapter, look for the answers to these questions: 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. 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. Factors of production: the resources the economy uses to produce goods & services, including labor land capital (buildings & machines used in production) The production possibilities frontier (ppf): a graph that shows the combinations of two goods the economy can possibly produce given the available resources and the available technology. Economy has 50,000 labour hours per month available for production. Producing one computer requires 100 hours labour.

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