ECN 104 Chapter Notes - Chapter 2: Root Mean Square, Opportunity Cost, Macroeconomics
23 Jul 2016
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Document Summary
Below are ways in which economists apply the logic of science to examine how economy works. The scienti c method: observation, theory, and more observation. The scienti c method involves, observation, theory, and more observation. Economists use theory and observation like other scientists, but they do face an obstacle that makes their tasks especially challenging: experiments are often dif cult in economics. Assumptions can simplify the complex world and make it easier to understand. The art in scienti c thinking is deciding which assumptions to make. Economists also use models to learn about the world that are most often composed of diagrams and equations. Economic models omit many details to allow us to see what is truly important. Circular flow-diagram: a visual model of the economy that shows how dollars ow through markets among households and rms. Markets for goods and services: firms sell, and households buy. Markets for production: households sell, and rms buy.
