ECN 203 Lecture Notes - Lecture 2: Opportunity Cost, Scientific Method
Document Summary
In the first, economists employ the scientific method (the dispassionate development and testing of theories about how the world works) Assumptions: simplify the complex world, make it easier to understand. Example: to study international trade, assume two countries and two goo. Unrealistic, but simple to learn and gives useful insights about the real world. Ex: road map, model of human anatomy. A visual model of the economy, shows how dollars flow through markets among households and firms. Own the factors of production, sell/rent them to firms for income. Buy/hire factors of production, use them to produce goods and services. Factors of production: the resources the economy uses to produce goods and services, including: Capital (building and machines used in production) Ppf: a graph that shows the combinations of two goods the economy can possibly produce given the available resources and the available technology. Economy has 50,000 labors per month available for production. Producing one computer requires 100 hours labor.
