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MicroEcon Chapter 2A
Thinking Like an Economist
| Question | Answer |
|---|---|
| What are economists’ two roles? How do they differ? | 1. Scientists: try to explain the world 2. Policy advisors: try to improve it |
| In what role does an economist employ the scientific method, the dispassionate development and testing of theories about how the world works? | Economist as a scientist |
| What are models? How do economists use them? | A simplified representation of a more complicated reality. Economists use models to study economic issues. |
| What are some examples of familiar models? | 1. A map 2. Human anatomy from high school biology class 3. Model airplane 4. Model teeth at the dentist’s office |
| What is a model of the economy, shows how dollars flow through markets among households and firms? | The Circular-Flow Diagram It also shows flow of goods and services produced and bought in economy. |
| What are the elements of the Circular-Flow Diagram? What concepts does the diagram illustrate? | Two types of actors - household and firms. Two markets - goods and services and factors of production It's a model of the economy that show how dollars flow through markets among households and firms |
| What are the two types of “actors” in a circular-flow diagram? | Households and firms |
| What are the two "markets" in a circular-flow diagram? | 1. Market for goods and services 2. Market for “factors of production” |
| What are the "Factors of Production?" | Resources the economy uses to produce goods & services, including 1) labor, 2) land 3) capital (buildings and machines used in production) |
| How are the, "Factors of Production," are paid/compensated? | Labor => wages Land => rent Capital (buildings and machines used in production) => interest |
| Who owns the factors of production and sells/rents them to firms for income? | Households. |
| Households buy and consume goods & services. True or False. | True. |
| Who buys/hires factors of production and uses them to produce goods and services? | Firms. |
| Households sell goods & services. True or False. | False. |
| What is the market for factors of production? | Land, labor and capital. |
| The circular-flow diagram shows that, in markets fo the factors of production: | Households are sellers and firms are buyers. |
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