Textbook Notes (363,004)
Canada (158,138)
Economics (923)
ECN 104 (388)
Chapter 2

Chapter 2- Thinking Like an Economist.docx

4 Pages
Unlock Document

Ryerson University
ECN 104
Paul Missios

CHAPTER 2: THINKING LIKE AN ECONOMIST THE SCIENTIFIC METHOD: OBSERVATION, THEORY AND MORE OBSERVATION -economists must make do with whatever data the world happens to give them -they play close attention to the natural experiments offered by history The Scientific Method: the systematic pursuit of knowledge through the formulation of a problem, collection of data, and the formulation and testing of hypotheses. It consists of a number of elements: elements: • Observation of facts (real world data) • The formulation of possible explanations of cause and effect (hypotheses) • The testing of these explanations (hypothesis) • The acceptance, rejection or modification of the hypotheses. • As favorable results accumulate, the hypotheses evolve into theory, law or principle (sometimes referred to a model) THE ROLE OF ASSUMPTIONS -assumptions are made to simplify the complex world for easier understanding -the art in scientific thinking is deciding which assumptions to make -economists use different assumptions in terms of short-run and long-run effects Ceteris Paribus (Other Things Equal): It is assumed that all other variables except those under immediate consideration are held constant for a particular analysis. ECONOMIC MODELS -economists use diagram and equation models to learn about the world -economic models omit the details to better understand what is truly important -all models are built with assumptions and does not include every feature of the economy THE CIRCULAR –FLOW DIAGRAM (P. 25) Circular-flow diagram: a visual model of the economy that shows how dollars flow through the markets among household and firms -Firms produce goods and services using inputs. Ex. labour, land (natural resources), and capital (buildings and machines) -inputs= factors of production (households own factors of production and consume what the firms produce) -Households and firms interact in two types of markets: Markets for goods and services -households -> buyers -firms -> sellers Markets for the factors of production -households -> sellers -firms -> buyers -inner loop shows the corresponding flow of inputs and outputs -outer loop shows the flow of dollars THE PRODUCTION POSSIBILTIES FRONTIER Production possibilities frontier: 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 -With the resources it has, the economy can produce at any point on or inside the production possibilities frontier, but it cannot produce at points outside the frontier -inside: possible, but inefficient -outside: impossible -point on curve: possible, efficient -outcome is considered efficient if the economy is getting all it can from scarce resources it has available -economy can produce any combination on or inside the frontier -there is a point when society faces a tradeoff; the on
More Less

Related notes for ECN 104

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.