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ECON 20A (35)
Chapter 2

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Department
Economics
Course
ECON 20A
Professor
Mu- Chun Chen
Semester
Spring

Description
Chapter 2: Thinking Like an Economist A. The scientific method: observation, theory, more observation - observe, theory, collect & analyze data - can't manipulate nation's monetary policy for data unlike scientists - war interrupts oil - econ. scientists study effects of natural resources on world's economies - econ. policymaker how to respond to crisis B. Role of Assumptions - assumptions can simplify complex world - makes it easier to understand - short run policy: $ don't change much - long term: $ flexible C. Economic models - omit details, built with assumptions 1. Circular flow diagram - circular flow diagram: visual model of economy showing how money flows through markets among households & firms - firms: produce goods & services using inputs --> factors of production: land, labor, capital - Households: own "factors of production" consumer goods & services firms produce 2. Production Possibilities Frontier - PDF: graph that shows the combinations of outputs that the economy can pssibly produce given the available factors of productions and the available production technology --> 2 endpoints represents the extreme possibilities - bowed outward
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