ECON 1000 Lecture Notes - Lecture 2: Models 1, Supreme Headquarters Allied Powers Europe, Opportunity Cost
4 Nov 2016
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Document Summary
As scientists, economists employ the scientific method: the dispassionate development and testing of theories about how the world works. As scientists, economists observe phenomena, formulate theories, collect data, analyze the data in order to verify or refute their theories. Studying past events will teach how the economy works. Assumptions simplify the complex world making it easier to understand. Example: in the studying international trade, we can assume the world consists of two countries and two goods. This is unrealistic, but simplifies the problem and yields useful insights about the more complicated world. Economists use models to study economic issues. A model is a highly simplified representation of a more complicated reality. Examples of economic models: the circular-flow diagram, the production possibility frontier. Shows how dollars flow through markets among households and firms. Factors of production: the resources that the economy uses to produce goods & services. Use them to produce goods and services.
