Summary Essentials of Economics Book cover image

Summary Essentials of Economics

- N Gregory Mankiw
ISBN-10 1337091995 ISBN-13 9781337091992
121 Flashcards & Notes
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A snapshot of the summary - Essentials of Economics Author: N Gregory Mankiw ISBN: 9781337091992

  • 1 Introduction

  • 1.2.1 The economist as scientist

  • How do scientists (like economists) develop a scientific method?
    By observing reality, devising a theory, and observing more, in order to verify/dispute the theory.
  • What is the purpose of assumptions, and why do economists make assumptions when trying to understand economic problems?

    - To simplify the complex world and make the problem easier to understand.
    - To focus on the essence of the problem.
  • What is the purpose of economic models, and why are they used by economists?
    Economic models simplify reality. Economists use economic models to learn about the world.
  • What is the Circular-Flow Diagram, and what is its purpose?

    - A schematic representation of the economy, that explains how the economy is organized.
    - Shows how households and firms interact with each other.
  • Which are the inputs, necessary to produce something (the factors of production)?
    1. Land (natural resources)
    2. Labour
    3. Capital (tools)
    4. Entrepreneurship
  • Why is applying the scientific method particularly challenging in economics (unlike in other sciences)?
    Because conducting economical experiments is often impractical: the data is mostly given and not derived from self performed experiments.
    Ex: a nation's monetary policy cannot be changed simply to generate useful data.
  • What is the role of firms, in the Circular Flow Diagram?
    - Firms produce/sell goods and services for revenue, on the "markets for goods and services".
    - Firms use/hire factors of production, for wages, rent and profit on the "markets of factors of production".
  • What is the role of households, in the circular flow diagram?
    - Households spend money to buy/consume goods and services on the 'markets for goods and services'.
    - Households own/sell the factors of production for income on 'the markets for factors of production'.
  • What useful data do economists use, in order to find a subsitute for laboratory experiments?
    Economists look at history (naturally occurring experiments). Historical episodes can be valuable to evaluate present economic theories.
  • What is the Production Possibilities Frontier?
    A graph that shows various combinations of output that the economy can possibly produce (given the available factors of production/technology).
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