ECON12200 Chapter 2: Chapter 2 Outline
12 Feb 2017
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Document Summary
Economists try to address their subject with a scientist"s objectivity: devise theories, collect data, and then analyze these data in an attempt to verify or refute their theories. The role of assumptions: assumptions can simplify the complex world and make it easier to understand, the art in scientific thinking is deciding which assumptions to make. Economic models: economists use models to learn about the world. Don"t include every feature of the economy: all models are built with assumptions. A visual model of the economy that shows how dollars flow through markets among households and firms. Firms produce goods and services using inputs (like land, labor, and capital: these inputs are called factors of production. Households own the factors of production and consume all the goods and services that the firms produce. Markets for goods and services: households are buyers, firms are sellers. Markets for the factors of production: households are sellers, firms are buyers.
