Ch.2 Thinking like an economist
Notes
Important economist language terms: Supply, demand, elasticity,
comparative advantage, consumer surplus, deadweight loss
To address their subject at hand, economists think like a
Scientist: they devise theories, collect data, & then analyze the
data to either refute or verify their theories
The scientific method is what applies to studying a nations
(method of inquiry)
economy
The interplay between theory & observation occurs in economics
ex. rapid increases in prices observation develop a theory of inflation
Experiments are often difficult in economics therefore economists
make do with whatever data the world gives them
Historical episodes in the world may be used by economists
these historical episodes are valuable to study because they give
us insight into the economy of the past, $ they allow US to
illustrate evaluate economic theories of the present
Economists use different assumptions to answer different ques-
tions
*
The short-run, long-run, or in between studying done
legds
by economists on a subject to different assumptions an-
sing(depending on the time horizon)
Economists use models to learn about the world (often dia-
grams equations are what are used)
These models don't always include every feature of the economy
All models in economics (even other fields as well ) simplify
reality in order to improve our understanding of it
Circular-flow diagram: visual model of the economy that
shows how dollars flow through markets among households
firms
simple way of organizing all the economic transactions that
occur between households firms in the economy
circular-flow diagram next page
WI
pussive
