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ECON 102 Chapter Notes - Chapter 2: Opportunity Cost, Factors Of Production, Scientific Method

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ivorybeetle121
16 Oct 2011
School
Simon Fraser University
Department
Economics
Course
ECON 102
Professor
Maryann Vaughan

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Document Summary

In the first role, 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: when studying international trade, we might assume the world consists of two countries and two goods. Very unrealistic, but simplifies the problem and yields useful insights about the more complicated real world. A model is a highly simplified representation of a more complicated reality. The circular-flow diagram: a visual model of the economy, shows how dollars flow through markets among households and firms. households firms. Includes two markets: the market for goods and services the market for factors of production . The factors of production are the resources that the economy uses to produce goods & services. They include: labour land capital (buildings & machines used in production) Firms-produce and sell goods and services; hire and use factors of production.

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Related Questions

For an economist, the idea of making assumptions is regarded generally asĀ 
a. bad idea, since doing so leads to the omission of important ideas and variables from economic
models.
b. bad idea, since doing so invariably leads to data-collection problems.
c. good idea, since doing so helps to simplify the complex world and make it easier to understand.
d. good idea, since economic analysis without assumptions, leads to complicated results that the
general public finds hard to understand
Ā 
Ā 

What is the market for factors of production?

  1. What is the market for factors of production?

    1. The market for factors of production is where households and firms interact to trade factors of production for factor payments. For example this is where people provide firms with labor and firms pay them with wages. 

  2. What is the money market?

    1. The money market is where households, firms, and the government may save and/or invest their money to earn interests. Money market includes banks, stock market, bonds market, and other financial institutions where economic actors can buy and sell financial assets to earn interests and/or dividends.

  3. Who are the three economic actors in the circular flow model?

    1. In a circular flow model, the three main economic actors are the households, firms, and the government. Households include the typical individual consumers. Firms include businesses and similar producers in the economy. Finally, the government refers to the whole government system from federal to local level.

  4. How is the national income of an economy determined?

    1. The national income of an economy is determined by measuring the total value of the output produced in an economy or the total income earned by the actors in the economy. In a circular flow model, we can see that the value of total output produced should equal the total value of income generated and earned in the economy. This is because every dollar spent by someone in the economy is received by another person in the economy as income.

  5. What is GDP?

    1. The gross domestic product or GDP represents the sum total of the value of the final goods and services produced within the economy for a given year. It is the most commonly used measure of its economy’s productivity and income.

Why do economists use economic models when making predictions or assumptions about the economy? Which economic model do you believe is the most beneficial to YOU at the present time? Why? *Economic Models: circular flow diagram, production possibility frontier, supply, and demand.