ECON 105 Chapter Notes - Chapter 2: Ceteris Paribus, Human Capital, International Trade

• School: Simon Fraser University
• Department: Economics
• Course: ECON 105
• Professor: Brian Krauth

Document Summary

Econ105 chapter 2 notes: economic models: trade-offs and trade. Model: any simplified representation of reality that is used to better understand real-life situations. Allow us to hold everything else constant and study how one change affects the overall economic outcome. I(cid:373)ple (cid:373)odels o(cid:374)l(cid:455) a(cid:374)s(cid:449)e(cid:396) (cid:862)(cid:449)hat if(cid:863) (cid:395)uestio(cid:374)s. Other things equal assumption: all other relevant factors remain unchanged (important assumption when building economic models) ofte(cid:374) (cid:396)efe(cid:396)(cid:396)ed to as (cid:862)cete(cid:396)is pa(cid:396)i(cid:271)us(cid:863) Production possibility frontier (ppf): model that helps economist think about the trade-offs every economy faces. Comparative advantage: model that clarifies the principle of gains from trade trade both between individuals and between countries. Circular-flow diagram: schematic representation that helps us understand how flows of money, goods, and services are channeled through the economy. Tax models: large mathematical computer programs (used to assess how the proposed changes would affect different types of people. Ppf: illustrates the trade-offs facing an economy that produces only two goods.