In this chapter: See how economists apply the methods of science, consider how assumptions and models can shed light on the world, learn two simple models - the circular flow and the production possibilities frontier, distinguish between microeconomics and macroeconomics,. | Lecture 2 Part I: Introduction to Business economics Part II: Market forces of supply and demand Instructor: Abbas Course code: ECO 400 Lecture 2 Part I: Introduction to Business economics Instructor: Abbas Course code: ECO 400 Thinking Like an Economist Economics trains you to. . . . Think in terms of alternatives. Evaluate the cost of individual and social choices. Examine and understand how certain events and issues are related. The economic way of thinking . . . Involves thinking analytically and objectively. Makes use of the scientific method. The Scientific Method: Observation, Theory, and More Observation Uses abstract models to help explain how a complex, real world operates. Develops theories, collects, and analyzes data to evaluate the theories. The Role of Assumptions Economists make assumptions in order to make the world easier to understand. The art in scientific thinking is deciding which assumptions to make. Economists use different . | Lecture 2 Part I: Introduction to Business economics Part II: Market forces of supply and demand Instructor: Abbas Course code: ECO 400 Lecture 2 Part I: Introduction to Business economics Instructor: Abbas Course code: ECO 400 Thinking Like an Economist Economics trains you to. . . . Think in terms of alternatives. Evaluate the cost of individual and social choices. Examine and understand how certain events and issues are related. The economic way of thinking . . . Involves thinking analytically and objectively. Makes use of the scientific method. The Scientific Method: Observation, Theory, and More Observation Uses abstract models to help explain how a complex, real world operates. Develops theories, collects, and analyzes data to evaluate the theories. The Role of Assumptions Economists make assumptions in order to make the world easier to understand. The art in scientific thinking is deciding which assumptions to make. Economists use different assumptions to answer different questions. Thinking Like an Economist Economic Models Economists use models to simplify reality in order to improve our understanding of the world Two of the most basic economic models include: The Circular Flow Diagram The Production Possibilities Frontier Our First Model: The Circular-Flow Diagram The circular-flow diagram is a visual model of the economy that shows how dollars flow through markets among households and firms. Thinking Like an Economist Thinking Like an Economist Firms Produce and sell goods and services Hire and use factors of production Households Buy and consume goods and services Own and sell factors of production Markets for Goods and Services Firms sell Households buy Markets for Factors of Production Households sell Firms buy Factors of Production Inputs used to produce goods and services Land, labor, and capital Thinking Like an Economist Our Second Model: The Production Possibilities Frontier The production possibilities frontier is a
