ECON 1200 Chapter Notes - Chapter 2: Congressional Budget Office, Opportunity Cost
8 Feb 2016
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Document Summary
The role of assumptions: economists make assumptions b/c assumptions can simplify the complex world & make it easier to understand, different assumptions are used to answer different questions. Ex: when studying short-run effects of a policy, assumed that prices don"t" change while when studying long-run effects of a policy, assumed that all prices are flexible. The circular-flow diagram: circular-flow diagram: visual model of the economy that shows how dollars flow through markets among households & firms. Simplified to include only 2 types of decision makers firms (produce goods. & services using factors of production) & households (own factors of production & consumed goods & services produced by firms) who interact in 2 types of markets markets for goods & services (households buy goods. & services that firms produce) & markets for the factors of production (households provide inputs that firms use to produce goods & services)
