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complex, real world operates. • Develops theories, collects, and analyzes data
to evaluate the theories.
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assumptions to make. • Economists use different assumptions to
answer different questions.
Copyright © 2004 South-Western/Thomson Learning
Economic Models
2百度文库
Thinking Like an Economist
Copyright © 2004 South-Western/Thomson Learning
Thinking Like an Economist
• Every field of study has its own terminology
• Mathematics
Copyright © 2004 South-Western/Thomson Learning
The Scientific Method: Observation, Theory, and More Observation • Uses abstract models to help explain how a
• integrals ❖ axioms ❖ vector spaces
• Psychology
• ego ❖ id ❖ cognitive dissonance
• Law
• promissory ❖ estoppel ❖ torts ❖ venues
• Economics
• supply ❖ opportunity cost ❖ elasticity ❖ consumer surplus ❖ demand ❖ comparative advantage ❖ deadweight loss
The Role of Assumptions • Economists make assumptions in order to
make the world easier to understand. • The art in scientific thinking is deciding which
= Flow of dollars
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Our First Model: The Circular-Flow Diagram • Firms
Copyright © 2004 South-Western/Thomson Learning
Figure 1 The Circular Flow
Revenue
Goods and services sold
MARKETS FOR
GOODS AND SERVICES •Firms sell •Households buy
issues are related.
Copyright © 2004 South-Western/Thomson Learning
THE ECONOMIST AS A SCIENTIST
• The economic way of thinking . . .
• Involves thinking analytically and objectively. • Makes use of the scientific method.
• Economists use models to simplify reality in order to improve our understanding of the world
• Two of the most basic economic models include:
• The Circular Flow Diagram • The Production Possibilities Frontier
Copyright © 2004 South-Western/Thomson Learning
Our First Model: The Circular-Flow Diagram • The circular-flow diagram is a visual model of the
economy that shows how dollars flow through markets among households and firms.
Spending
Goods and services bought
FIRMS •Produce and sell goods and services •Hire and use factors of production
HOUSEHOLDS •Buy and consume goods and services •Own and sell factors of production
Copyright © 2004 South-Western/Thomson Learning
Thinking Like an Economist
• Economics trains you to. . . .
• Think in terms of alternatives. • Evaluate the cost of individual and social choices. • Examine and understand how certain events and
Factors of production
Wages, rent, and profit
MARKETS FOR
Labor, land, and capital
FACTORS OF PRODUCTION
•Households sell •Firms buy
Income
= Flow of inputs and outputs
