Textbook Notes (363,149)
Canada (158,223)
Economics (727)
ECON 1B03 (302)
Chapter 2

Chapter 2

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McMaster University
Usman Hannan

CHAPTER 2: THINKING LIKE AN ECONOMIST The Economist as Scientist The Scientific Method: Observation, Theory and More Observation - unable to conduct experiments, must go off of historical knowledge and present information - development and testing of theories about how the world works The Role of Assumptions - assumptions can simplify the complex world and make it easier to understand Economic Models - use of diagrams and equations - model: a highly simplified representation of a more complicated reality 1 – The Circular-Flow Diagram: - how the economy is organized and how participants in the economy interact with one another - circular-flow diagram: visual model of the economy that shows how dollars flow through markets among households and firms - inputs (i.e. labour, land) = factors of productions - markets for goods and services > households are buyers, firms are sellers - markets for production > households are sellers, firms are buyers (i.e. provides input, wages, land) 2 – The Production Possibilities Frontier: - built using math - production possibilities frontier (PPF): graph showing the combinations of output that the economy can possibly produce given the available factors of production and the available production technology - cannot produce at any point above the PPF line (not enough f
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