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A snapshot of the summary - Essentials of Economics
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1 Introduction
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1.2.1 The economist as scientist
This is a preview. There are 12 more flashcards available for chapter 1.2.1
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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 modelssimplify reality . Economists use economic models tolearn about the world. -
What is the
Circular-Flow Diagram , and what is its purpose?
- Aschematic representation of the economy, that explains how the economy isorganized .
- Shows how households and firms interact with each other. -
Which are the
inputs , necessary toproduce something (the factors of production)?1.Land (natural resources)
2.L abour
3.C apital (tools)
4.E ntrepreneurship -
Why is applying the scientific
method particularly challenging in economics (unlike in othersciences )?Because conducting economical experiments is oftenimpractical : the data is mostly given and notderived from self performed experiments.
Ex: a nation'smonetary policy cannot be changed simply togenerate useful data. -
What is the role of
firms , in the Circular FlowDiagram ?-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 ofproduction ". -
What is the role of
households, in the circular flowdiagram ?-Households spend money to buy/consume goods and services on the 'markets for goods and services'.
-Households own/sell thefactors of production for income on 'the markets forfactors of production'. -
What useful data do
economists use, in order to find asubsitute for laboratory experiments?Economists look at history (n aturally occurring experiments). Historical episodescan be valuable to evaluate present economic theories. -
What is the Production Possibilities
Frontier ?Agraph that shows variouscombinations ofoutput that the economy canpossibly produce (given the available factors of production/technology).
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The following topics are covered in this summary
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production, economy, possibilities
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policy, economists, advice
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master-economist, economists, science
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variable, curve, demand
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ppf, possibilities, consumption
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advantage, comparative, trade
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market, price, competitive
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demand, price, quantity
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supply, price, quantity
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equilibrium, quantity, supplied
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demand, price, elasticity