Brief outline of lecture notes for Chap 2 and practice questions
• Consider how assumptions and models can shed light on the world.
• Learn two simple models—the circular flow and the production possibilities
• Distinguish between microeconomics and macroeconomics.
FOR NOTES ON GRAPH PLEASE REFER TO APPENDIX SECTION OF THE
CHAPTER FROM TEXTBOOK: pgs 38 to 44.
Every field of study has its own terminology
• suppl™ opportunity c™selastic™tconsumer surpl™s
demand™ comparative advanta™edeadweight loss
Economics trains you to. . . .
¾ Think in terms of alternatives.
¾ Evaluate the cost of individual and social choices.
¾ Examine and understand how certain events and issues are related.
The economic way of thinking . . .
¾ Involves thinking analytically and objectively.
Makes use of the scientific method.
Economists make assumptions in order to make the world easier to understand.
The art in scientific thinking is deciding which assumptions to make.
Economists use different assumptions to answer different questions
Economists use models to simplify reality in order to improve our understanding
of the world
Two of the most basic economic models include:
¾ The Circular Flow Diagram
¾ The Production Possibilities Frontier
Thecircular-flow diagramm is a visual model of the economy that shows how
dollars flow through markets among households and firms.
1 REFER TO FIG 2.1 on pg 25 of TEXTBOOK.