ECON 102 Chapter Notes - Chapter 2: Opportunity Cost
Document Summary
Economists pay close attention to the natural experiments offered by history. Assumptions can simplify the complex world and make it easier to understand. Economists use different assumptions to answer different questions. Economists use models to learn about the world and consist of diagrams and equations. Economic models omit many details to allow us to see what is truly important. Circular-flow diagram - economy is simplified to include only two types of decision makers; firms and households. Firms - produce goods and services using inputs, such as labor, land, and capital. Households- own the factors of production and consume all the goods and services that the firms produce. Markets for goods and services - households are buyers and firms are sellers. Households buy the output off goods and services that firms produce. Markets for the factors of production - households are sellers and firms are buyers. Households provide the inputs that firms use to produce goods and services.