Textbook Notes (368,430)
Canada (161,877)
Economics (747)
ECON 1B03 (303)
Chapter 2

Chapter Two Economics

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Hannah Holmes

Chapter Two: Thinking Like An Economist 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 an testig of theories about how the world works  Assumptions simplify the complex world, make it easier to understand Model: A highly simplified representation of a more complicated reality.  Economists use models to study economic issues Circular-Flow Diagram: a visual model of the economy, shows how dollars flow through markets among households and firms There are two types of “actors”:  Households  Firms Two markets:  The markets for goods and services  The market for “factors of production” Factors of Production: the resources the economy uses to produce goods and services  Labour  Land  Capital (buildings and machines used in production) Our Second Model: 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 E.g.:  Two goods: computers and wheat  One resource: labour (measure in hours)  Economy has 50,000 labour hours per month avai
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