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Econ 1a Chapter 2
Key Terms and concepts
Terms in this set (13)
How do economists use a form of the scientific method?
They have to make do with whatever data is already available -- they can't really conduct economic experiments at will.
Why are all models built with assumptions?
To simplify reality in order to improve understanding of it
A visual economic model that shows how dollars flow through markets among households and firms
- firms produce goods using inputs such as labor, land, and capital -- factors of production
- households own the factors of production and consume what firms produce
counterclockwise movement along circular-flow diagram
involve factors of production
clockwise movement along circular-flow diagram
production possibilities frontier
a graph that shows the various combinations of output that the economy can possibly produce, given the available factors of production and the available production technology that firms use to turn these factors into output
the study of how households and firms mark decisions and how they interact in specific markets
the study of economy-wide phenomena
- impossible to understand without considering microeconomic decisions
claims that attempt to describe the world as it is
- affect normative views
- much of economics is positive
claims that attempt to prescribe how the world should be
- evaluation of these involves values and facts
- can't stem from positive analysis alone
- are often the goals of those who use economics
What are the two basic reasons for why economists disagree?
1) economists may disagree about the validity of alternative positive theories about how the world works
2) economists may have different values and therefore different normative views about what policy should try to accomplish
Why is the advice of economists not always followed?
Many other advisers are consulted before proposing a new economic policy.
Why do economists make assumptions?
In order to simplify their explanations of complexities.