Thinking Like an Economist : Thinking Like an Economist Chapter 2 Economics trains you to. . . . : Economics trains you to. . . . Be mindful about the choices that you make.
Evaluate the cost of individual and social choices.
Examine and understand how certain events and issues are related.
But there is the issue of terminology, some math, and GRAPHS, GRAPHS AND SOME MORE GRAPHS! The Economist as a Scientist : The Economist as a Scientist The economic way of thinking . . .
Involves thinking analytically and objectively.
Makes use of the scientific method.
Involves the use of abstract models to focus the discussion on a main idea or theme in the complexity of the real world.
To apply the scientific method in economics, assumptions are used to make the world easier to understand.
Ceteris Paribus Assumption-All else equal.
Role Play Scenario-Purchasing something at a store. Economic Models : Economic Models Economists use models to simplify reality in order to improve our understanding of the world.
As simplifications of reality, models need assumptions.
A Model of Boids Flying
Models start small and then grow in increasing complexity.
Play Bolero by Maurice Ravel Graphing Data : Graphing Data A graph reveals a causal relationship between two variables.
The vertical line is the y-axis.
The horizontal line is the x-axis.
How do we show a negative and a positive relationship between variables? Two Simple Rules for Movements vs. Shifts : Two Simple Rules for Movements vs. Shifts Rule One
When an independent variable changes and that variable does not appear on the graph, the curve on the graph will shift.
When an independent variable changes and does appear on the graph, a movement along the existing curve will occur. The curve will not shift. Graphing Data : Graphing Data Economists use three types of graphs to reveal relationships between variables. They are:
Scatter diagrams Two of the Most Basic Economic Models Are : Two of the Most Basic Economic Models Are The Circular Flow Diagram
The Production Possibilities Frontier. The Circular-Flow Diagram : The Circular-Flow Diagram Firms Households Market for
of Production Market for
and Services Journal Assignment-Circular Flow Diagram : Journal Assignment-Circular Flow Diagram Draw a circular flow diagram.
Identify the parts of the model that correspond to the flow of goods and services and the flow of dollars for each of the following activities:
Sam pays a storekeeper $1 for a quart of milk.
Sam gets a quart of milk.
Sally earns $4.50 per hour working at a fast food restaurant.
Sally works at the restaurant. The Production Possibilities Frontier : The Production Possibilities Frontier Shows the various combinations of two goods that can be produced by one firm.
Assumes two goods
Assumes fixed technology and fixed factors of production. The Production Possibilities Frontier : The Production Possibilities Frontier Quantity of
Produced Quantity of
Cars Produced 3,000 1,000 The Production Possibilities Frontier : The Production Possibilities Frontier Quantity of
Produced Quantity of
Cars Produced 3,000 1,000 2,000 2,200 A 700 600 300 0 1,000 B C D Production possibilities frontier Concepts Illustrated by the Production Possibilities Frontier : Concepts Illustrated by the Production Possibilities Frontier Efficiency
Economic Growth The Production Possibilities Frontier : The Production Possibilities Frontier Quantity
Produced Quantity of
Cars Produced 3,000 2,000 A 700 0 1,000 An outward shift in the production possibilities frontier
Increase in technology to produce computers. Microeconomics and Macroeconomics : Microeconomics and Macroeconomics Microeconomics focuses on the individual parts of the economy.
How households and firms make decisions and how they interact in specific markets
Macroeconomics looks at the economy as a whole.
How the markets, as a whole, interact at the national level. The Essence of Microeconomics-Buyers and Sellers : The Essence of Microeconomics-Buyers and Sellers The Many Facets of Macroeconomics : The Many Facets of Macroeconomics Two Roles of Economists : Two Roles of Economists When they are trying to explain the world, they are scientists.
When they are trying to change the world, they are policymakers. Positive versus Normative Analysis : Positive versus Normative Analysis Positive statements are statements that describe the world as it is.
Called descriptive analysis
Normative statements are statements about how the world should be.
Called prescriptive analysis Why Economists Agree and Disagree : Why Economists Agree and Disagree We agree on the methodology, but not on the underlying assumptions underlying incentives and behavior.
Example-No Child Left Behind and Test Scores.