ECON 1BB3 Chapter 2: Chapter 2 - Thinking Like and Economist

• School: McMaster University
• Department: Economics
• Course: ECON 1BB3
• Professor: Bridget O' Shaughnessy

Document Summary

Economists try to address their subject with a scientist s objectivity. They devise theories, collect data and then analyze these data in an attempt to verify or refute their theories. Scientific method the dispassionate development and testing of theories about how the world works. Circular flow diagram: a visual model of the economy that shows how dollars flow through markets among households and firms. Factors of production: labor, land (natural resources), and capital (buildings and machines). Firms input factors of production to produce goods and services. Markets for goods and services households are buyers and firms are sellers. Markets for the factors of production households are sellers and firms are buyers. The inner loop of the circular flow diagram represents the flows of inputs and outputs. The households sell the use of their labor, land and capital to the firms in the markets for the factors of production.