EC-0005 Study Guide - Free Market, Marginal Cost, Invisible Hand

• School: Tufts University
• Department: Economics
• Course: EC-0005
• Professor: Kelly Greenhill

Document Summary

Economics- the study of the choices people make to attain their goals, given their scarce resources. Is technically a social science as it considers human behavior- particularly decision-making behavior- in every context (not just the context of business: the rule that guides decision making never changes, even when circumstances change. Economic model- a simplified version of reality used to analyze real-world economic. Steps to develop an economic model: situations formulate a testable hypothesis. 1 decide on the assumptions to use in developing the model. 3 use economic data to test the hypothesis. 5 revise the model if it fails to explain the economic detail well retain the revised model to help answer similar economic questions in the future. The role of assumptions in economic models: economic models make behavioral assumptions about the motives of consumers and firms. Typically assume that firms aim to maximize profits and consumers aim to maximize utility or well-being.