EC120 Chapter Notes - Chapter 2: Political Philosophy, John Maynard Keynes, Opportunity Cost
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EC120 Full Course Notes
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Economists devises theories, collect data, and then analyze these data. The scientific method: observation, theory, and more observation. An economist may live in a country experiencing rapid increases in prices and be moved by this observation to develop a theory of inflation. To test this theory the economist could collect and analyze data on prices and money from many different countries. Economists have to find a substitute for laboratory experiments economist pay close attention to the natural experiments that are offered by history. Assumptions can simplify the complex world and make is easier to understand. Simplifying the world to two countries and each of which makes two goods. The art is deciding which assumptions to make. For studying short run effects we may assume that prices do not change much. Economists use models to learn about the world; composed of diagrams and equations. An economist"s model does not include every feature of the economy.