Chapter+2+-+Thinking+like+an+Economist

=Thinking Like an Economists =

http://www.youtube.com/watch?v=gOmWlwdHoOU&feature=related == = = = = = = = = = = = = = = = = = This is a powerpoint of chapter 2 = = from the Mankiw website: =

= = = = = = = = = = = = = = = = = = = = = = = = =The Scientific Method: Observation, Theory, and More Observation= Economists are like the scientists ...
 * Economists do natural experiments by reflecting back to the history
 * Collect and analyze data on prices and money
 * By analyzing such data, the economists could develop the theory such as the inflation.

=The Economist as Scientist = Economists use models to learn about the world using diagrams. Their first model is the Circular-Flow Diagram.

source:http://www.culturaleconomics.atfreeweb.com/CE2.htm

This diagram is a schematic representation of the organization of the economy. In this diagram, there are two types of decision makers: firms and households. The inputs, such as **labor, land, and capital**, are called the factors of production. In the markets for goods and services, households are buyers, and firms are sellers. Households provide the inputs that firms use to produce goods and services. On the circular-flow diagram, the inner loop represents the flows of **inputs and outputs,** and the outer loop represents the corresponding flow of dollars.

In addition to the explanation above on the Circular-Flow Diagram,** take a look at the video ** below, which the professor lectures on this diagram specifically in detail. source: http://blog.bioethics.net/2008/08/money-turns-out-its-bad-for-you/

media type="youtube" key="lshvr4ug2rY&hl=ko&fs=1" height="344" width="425"

The **second** model the economists is **... The Production Possibilities Frontier **

source: http://wps.prenhall.com/bp_case_econ_8/52/13546/3467868.cw/content/index.html

This graph shows the combination of output that the economy can possibly produce given the available factors of production and the available production technology. The points that lie on the curve represents the **efficient **outcomes, and the points inside the curve is an **inefficient outcome **. Thus, from this frontier, the economy can produce at any point inside or on the frontier, but it cannot produce outside the frontier.

When the economy** use all the scarce resources **that is available, it is said to be efficient. And this point lies on the frontier. As it can be seen ont eh graph on the left, its opportunity cost is the highest at a **point E**. However, a point situated somewhere next to **A** on its flattened frontier, its opportunity is low.

 **Macronomics** is a **broader** study of economy, including inflation, unemployment, etc.
 * Microeconomics and Macronomics **
 * Microeconomics** is a study of how the firms and households interact and make decisions in the market.

Microeconomics and Macroeconomics are **<span style="font-size: 130%; color: rgb(197, 7, 7);">closely related **. Macroeconomics deal with broade aspect of the economy, whereas microeconomics goes deeper to study about the economy in detail with the concept of both firms and households.

For our future studies on 2nd semester, listen to the video of "macroeconomics rap" briefly: media type="youtube" key="JXfsfj4nnUg" height="344" width="425" http://www.youtube.com/watch?v=JXfsfj4nnUg

http://www.bcgov.net/bftlib/Pointing%20hand%20R.gif
 * <span style="font-size: 150%; color: rgb(14, 75, 180);">The Economist as Policy Adviser **

//**<span style="font-size: 140%; color: rgb(200, 40, 40);">Positive VS Normative Analysis **//

<span style="font-size: 120%; color: rgb(0, 99, 255);">**Positive statements** illustrates the "world as it is", where as <span style="font-size: 120%; color: rgb(47, 119, 238);">**normative statements** illustrate "how the world should be". From their differences, the KEY difference depends on how we judge their validity. In other words, economists would argue ...
 * the <span style="font-size: 110%; color: rgb(202, 18, 98);">"validity" of the positive theories about the world
 * the different**<span style="font-size: 120%; color: rgb(122, 198, 214);"> "values" **, which gives contrasting normative views

Because the economists disagree on these two main concepts, they have different values and scientific judgments.

Listen to the audio below, and rap up the thoughts that have been all mentioned above: media type="file" key="econ1 5.m4a"
 * <span style="font-size: 140%; color: rgb(206, 70, 70);">Summary: **


 * <span style="font-size: 140%; color: rgb(56, 92, 204);">Questions and Answers: **


 * <span style="font-size: 130%; color: rgb(137, 46, 234);">1. What's the difference between microeconomics and macroeconomics ** ?
 * <span style="font-size: 130%; color: rgb(188, 78, 32);">2. What's the purpose of circular flow diagram ** ?

1A. Microeconomics is about how the firms and households interact and make decisions, whereas macroeconomics deal with a broader study, including inflation, unemployment etc

2A. Circular flow diagram is a model to show the organization of the economy, with the interaction between the firms and households. Moreover, this diagram shows how dollars follow and how inputs and outputs flow as well.