Upload
sunny1236
View
237
Download
0
Embed Size (px)
Citation preview
8/7/2019 Chap_02 Thinking Like Economist
1/21
Thinking Like an
Economist
Chapter 2
8/7/2019 Chap_02 Thinking Like Economist
2/21
Economics trains you to. . . .
Be mindful about the choices that youmake.
Evaluate the cost of individual and socialchoices.
Examine and understand how certain
events and issues are related.But there is the issue of terminology, some
math, and GRAPHS, GRAPHS AND SOMEMORE GRAPHS!
8/7/2019 Chap_02 Thinking Like Economist
3/21
The Economist as a Scientist
The economic way of thinking . . .
Involves thinking analytically and objectively.
Makes use of the scientific method.Involves the use of abstract models to focus the
discussion on a main idea or theme in the complexityof the real world.
To apply the scientific method in economics, assumptionsare used to make the world easier to understand.
Ceteris Paribus Assumption-All else equal.
Role Play Scenario-Purchasing something at a store.
8/7/2019 Chap_02 Thinking Like Economist
4/21
Economic Models
Economists use models to simplify reality
in order to improve our understanding of the
world.
As simplifications of reality, models need
assumptions.
A Model of Boids Flying
Models start small and then grow in
increasing complexity.
Play Bolero by Maurice Ravel
8/7/2019 Chap_02 Thinking Like Economist
5/21
Graphing Data A graph reveals a causal
relationship between two
variables.
The vertical line is they-axis.
Independent variable.
The horizontal line is the x-
axis.
Dependent variable.
How do we show a negative
and a positive relationship
between variables?
8/7/2019 Chap_02 Thinking Like Economist
6/21
Two Simple Rules for
Movements vs. Shifts Rule One
When an independent variable changes and
that variable does not appear on the graph,the curve on the graph will shift.
Rule Two
When an independent variable changes anddoes appear on the graph, a movement alongthe existing curve will occur. The curve willnot shift.
8/7/2019 Chap_02 Thinking Like Economist
7/21
Graphing Data Economists use three types of graphs to
reveal relationships between variables. They
are: Time-series graphs
Cross-section graphs
Scatter diagrams
8/7/2019 Chap_02 Thinking Like Economist
8/21
Two of the Most Basic
Economic Models Are The Circular Flow Diagram
The Production Possibilities Frontier.
8/7/2019 Chap_02 Thinking Like Economist
9/21
The Circular-Flow Diagram
FirmsHouseholds
Market for
Factors
of Production
Market for
Goods
and Services
SpendingRevenue
Wages, rent,
and interest
Income
Goods &Services sold
Goods &Servicesbought
Labor, land,and capital
Inputs forproduction
8/7/2019 Chap_02 Thinking Like Economist
10/21
Journal Assignment-
Circular Flow Diagram Draw a circular flow diagram.
Identify the parts of the model that correspond
to the flow of goods and services and the flow ofdollars for each of the following activities:
Sam pays a storekeeper $1 for a quart of milk.
Sam gets a quart of milk.
Sally earns $4.50 per hour working at a fast food
restaurant.
Sally works at the restaurant.
8/7/2019 Chap_02 Thinking Like Economist
11/21
The Production Possibilities
Frontier
Shows the various combinations of two
goods that can be produced by one firm.
Assumes two goods
Assumes fixed technology and fixed
factors of production.
8/7/2019 Chap_02 Thinking Like Economist
12/21
The Production Possibilities
FrontierQuantity of
Computers
Produced
Quantity ofCars Produced
3,000
0 1,000
2,000
700
1,000
300
A
B
2,200
600
C
D
8/7/2019 Chap_02 Thinking Like Economist
13/21
The Production Possibilities
FrontierQuantity of
Computers
Produced
Quantity ofCars Produced
3,000
1,000
2,000
2,200A
7006003000 1,000
B
C
D
Productionpossibilities
frontier
8/7/2019 Chap_02 Thinking Like Economist
14/21
Concepts Illustrated by the
Production Possibilities Frontier
Efficiency
TradeoffsOpportunity Cost
Economic Growth
8/7/2019 Chap_02 Thinking Like Economist
15/21
4,000
The Production
Possibilities Frontier
Quantity
of Computers
Produced
Quantity ofCars Produced
3,000
2,000A
7000 1,000
E2,100
750
An outward shiftin the production
possibilitiesfrontier
Increase intechnology to
producecomputers.
8/7/2019 Chap_02 Thinking Like Economist
16/21
Microeconomics and
Macroeconomics
Microeconomics focuses on the individual
parts of the economy.
How households and firms make decisions
and how they interact in specific markets
Macroeconomics looks at the economy as
a whole.How the markets, as a whole, interact at the
national level.
8/7/2019 Chap_02 Thinking Like Economist
17/21
8/7/2019 Chap_02 Thinking Like Economist
18/21
The Many Facets of
Macroeconomics
8/7/2019 Chap_02 Thinking Like Economist
19/21
Two Roles of Economists
When they are trying to explain the
world, they are scientists.
When they are trying to change the
world, they are policymakers.
8/7/2019 Chap_02 Thinking Like Economist
20/21
Positive versus Normative
Analysis
Positive statements are statements
that describe the world as it is.
Called descriptive analysis
Normative statements are statements
about how the world should be.Called prescriptive analysis
8/7/2019 Chap_02 Thinking Like Economist
21/21
Why Economists Agree and
Disagree
We agree on the methodology,
but not on the underlyingassumptions underlying
incentives and behavior.
Example-No Child Left Behindand Test Scores.