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Microecon Chap 2

Thinking like an Economist

QuestionAnswer
What is economics academically? A science, data is collected, theories are made, data analyzed, scientific method used, experiments conducted (though impractical), observational, and assumptions are made.
What role do assumptions have in economics? Simplify complex worlds though it is done through scientific thinking. Different assumptions are made to answer different questions either to study short-term or long-term effects.
What are economic models? Consists of diagrams and equations, omits many details, but allows us to see what is important, is built with assumptions t improve our understanding of reality.
What are Circular-flow diagrams? A visual model of the economy that shows how money flows through markets among households and firms.
What are the two decision makers? Firms and households.
What are the two markets? Goods and services, and factors of production (input or labor).
What are firms? PRODUCES goods and services and USES factors of production (inputs).
What are households? OWNS factors of production and CONSUMES goods and services.
How do firms and households make up the circular flow. Firms and households interact in markets. The market for GOODS AND SERVICES consists of firms as sellers and households as buyers. The market for FACTORS OF PRODUCTIONS consists of firms as buyers and households as sellers.
Explain Production Possibilities Frontier (PPF). A graph that displays the combinations of outputs that an economy can possibly produce given the available factors of production and production of technology.
What are efficient levels of production? The economy is getting all it can from the scarce resources available and are represented as points on the PPF.
What are inefficient levels of productions? This will be points inside the PPF. The economy is not producing all that it can with the available scarce resources.
What could shift the PPF? Specialization of a resource will bow the graph and a technological advancement in the economy will shift the graph outward.
What is a positive statement? A statement that attempts to describe the world as it is. It confirms or refutes claims by examining evidence.
What is a normative statement? A statement that attempts to prescribe how the world should be.
What is economist in an economy? Economists are policy advisers.
What are the departments economist have in the US government. Office of Management and Budget, Department of the Treasury, Department of Labor, Department of Justice, Congressional Budget Office, and The Federal Reserve.
How are decisions made in the government. Economic advisers decide best policy, communication advisers explain to the public, Press advisers explain to media, Legislative affairs advisers how Congress will view the proposal, Political advisers' effect on the electorate The president decides.
Why might economists disagree? Different values, different scientific judgments, different values, perception versus reality.
Why do different values matter? Economist will have different normative views about what policies should try to accomplish.
Why do different scientific judgments matter? Economists can have different "hunches" about validity of alternative theories and size of important parameters.
What purpose do graphs serve? They visually express ideas that might be less clear if described with equations or words and are a powerful way of finding and interpreting patterns.
What are some single variable graphs? Pie charts, bar graphs, and time-series graphs.
What are the components of a two variables graphs? Two variables are displayed on a single graph as a scatterplot with an x and y coordinate.
Created by: angry
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