ECON 1BB3 Chapter Notes - Chapter 2: Demand Curve

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Published on 21 Apr 2013
Department
Course
Chapter 2
Thinking like an Economist
Page 21-51
The Scientific Method: Observation, Theory, and more Observation
Economists use theory and observations. They devise theories, collect data, and then
analyze these data in am attempt to verify or refute their theories. They’re unable to
perform experiments so they must gather natural experiments offered to them
through history (economy of the past).
The Role of Assumptions
Assumptions can simplify the complex world and make it easier to understand.
The Circular flow diagram
Decisions are made by households and firms. Households and firms interact in the
markets for goods and services (where households are buyers and firms are sellers).
The outer set of arrows shows the flow of dollars and the inner set of arrows shows
the corresponding flow of inputs and outputs.
The Production Possibilities Frontier (PPF)
The PPF is a graph that shows the combinations of output that the economy can
possibly produce given the available factors of production and the available
production technology.
Points on the PPF represent efficient levels of production. Points on the inside
represent an inefficient outcome. Points outside of the PPF graph represent an
infeasible point.
Microeconomics and Macroeconomics
Microeconomics is the study of how households and firms make decisions and how
they interact in specific markets. Macroeconomics is the study of economy-wide
phenomena.
Positive versus Normative Analysis
Positive statements are claims that attempt to describe the world as it is.
Normative statements are claims that attempt to prescribe how the world should
be.
Why Economists Disagree
Differences in Scientific Judgments
Differences in Values
Perception versus Reality
Demand Curves
Positive Correlation- study time and grade point average have a positive
correlation because they tend to move in the same direction.
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Document Summary

The scientific method: observation, theory, and more observation. They devise theories, collect data, and then analyze these data in am attempt to verify or refute their theories. They"re unable to perform experiments so they must gather natural experiments offered to them through history (economy of the past). Assumptions can simplify the complex world and make it easier to understand. Households and firms interact in the markets for goods and services (where households are buyers and firms are sellers). The outer set of arrows shows the flow of dollars and the inner set of arrows shows the corresponding flow of inputs and outputs. The ppf is a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology. Points on the ppf represent efficient levels of production. Points on the inside represent an inefficient outcome. Points outside of the ppf graph represent an infeasible point.

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