ECON 1000 Lecture Notes - Lecture 2: Opportunity Cost, Scientific Method

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The scientific method involves observation, theory, and more observation. Economists use theory and observation like other scientists, but they do face an obstacle that makes their task challenging: experiments are often difficult in economics (cid:0) like other scientific areas, economists use models to learn about the world. Most often composed of diagrams and equations. By making simplifying assumptions, models omit many details to make the world easier to understand and to allow us to see what is truly important (cid:0) key is deciding which assumptions to make first model: the circular flow. Includes two types of decision makers- households and firms. Inner loop represents the flow of inputs and outputs. Outer loop represents the flow of dollars (cid:0) factors of production: 2. market for factors of production (cid:0) households provide firms with labor, land, capital second model: the production possibilities frontier.

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