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circular flow diagram

a visual model of the economy that shows how dollars flow through markets among households and firms

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


the study of how households and firms make decisions and how they interact in markets


the study of economy wide phenomena, including inflation, unemployment, and economic growth

positive statements

claims that attempt to describe the world as it is

normative statements

claims that attempt to prescribe how the world should be

What objective do Economists try to address their subjects with?

Scientist's objectivity

Name two simple economic models?

circular Flow Diagram and Production possibilities frontier

The field of economics is divided into two subfields, what are they?

Microeconomics and Macroeconomics

What is the study decision of Microeconomists?

The study decision making by households and firms and the interaction among households and firms in the marketplace.

What is the study decision of Macroeconomists?

The study of the forces and trends that affect the economy as a whole

What is a positive statement?

A positive statement is an assertion about how the world is.

What is a normative statement?

A normative statement is an assertion about how the world ought to be. WHen economists make normative statements, they are acting more as policy advisers than as scientists.

Why when Economists advise policymakers it is conflicting advice?

Because of differences in scientific judgements or because of differences in values. Sometimes economists are united in the advice they offer but policymakers may choose to ignore it

How is economics like science?

Like all scientists, they make appropriate assumptions and build simplified models to understand the world around them.

Why do economists make assumptions?

To simplify the complex world and make it easier to understand

Should an economic model describe reality exactly?


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