Chapter+2+Thinking+Like+an+Economist+JBS

=Chapter 2 Thinking Like an Economist JBS = 

**Key Terms:**
= =  **Circular-flow diagram**: a visual model of the economy that shows how dollars flow through markets among households and firms


 * Production Possible Frontier**: a graph that shows the combination of output that the economy can possibly produce given the available factors of production and the available production technology


 * Microeconomics**: The study of how households and firms make decisions and how they interact in markets


 * Macroeconomics:** The study of economy wide phenomena, including inflation, unemployment, and economic growth


 * Positive statements**: claims that attempt to describe the world as it is


 * Negative statements:** claims that attempt to prescribe how the world should be

== **Economists are scientists. **== 



 * Why?**

This is because //economists also use scientific method//. Scientific method is stated to be the dispassionate development and testing of theories about how the world works. One value that is different from an economist from the scientist is that it is very hard to "prove" anything in economics. So it is //crucial for an economist to make data out of whatever information they have//.

For this reason, economists make assumptions because they can simplify the world. Assumptions are largely used in the field of economics, in order to answer different types of questions. 


This graph, one of the basic models of economy, is based on the assumption that the economy is simplified to have only two decision makers. These decision makers are __firms and households.__ Firms provide goods and services and purchase land, labor, and capital. Households purchase goods and service, and they provide land, labor and capital. These land, labor, and capital that households sell are called Factors of Production. According to this graph, there are two types of market. __Product market, or so called the market for goods and services, and market of factors of production.__

In the market for goods and services, firms sell, and the households buy. In the market of factors of production, the households sell, and the firms buy.

The inner arrows represent the flow of inputs and outputs. In this case, the inputs and outputs can be classified as the labor, land, capital, and the goods and services. 



<span style="color: #000000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">
<span style="color: #000000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;"> <span style="color: #000000; font-family: Tahoma,Geneva,sans-serif;"> This graph is called a //Production Possibilities Frontier//, and it is a graph that //shows the combination of certain products that can be produced with the available efficiency//. The economy can produce any quantity that is in the frontier line or "on" the frontier line. Yet the economy would tend to produce combination that is on the frontier line because it is considered the most efficient. The combination on the line indicate that they are producing with full use of its scarce resources. So in such point, it is impossible to produce more of product A without reducing the production of product B.

Producing within the frontier is also possible, yet it would mean that the economy is inefficient because it is not producing at its fully efficient level. A point that is outside of the frontier is simply "impossible", because such combination can't be performed with the technology and development of this economy.

In this graph, point A are B are EFFICIENT. Point D is considered INEFFICIENT, because it is simply not running at its full capacity. Point C is IMPOSSIBLE without any trade because it is impossible with this production rate of this market. <span style="color: #000000; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">

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<span style="font-family: Tahoma,Geneva,sans-serif;"><span style="font-family: Tahoma,Geneva,sans-serif;">Many subjects in this society contains variety levels of studies. In the field of economics, there are two traditional divisions of sub-fields: microeconomics and macroeconomics. Microeconomics is the study of how households and firms make decisions and how they interact in specific markets. Macroeconomics is the study of economy wide phenomena.

To simplify, microeconomics is //covering the details and small parts of the economics// such as the effects of rent control on housing in specific cities (following its prefix micro-) AND

macroeconomics is //covering the broad view and big parts of the economics// such as the effects of borrowing by the federal government (following its prefix macro-).



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<span style="font-family: Tahoma,Geneva,sans-serif;"> Positive Statements are usually very descriptive and they are describing the world as it is. Normative statements are prescriptive and they make a claim about how the world should change, and how they should be.



<span style="font-family: Tahoma,Geneva,sans-serif;"> **<span style="font-family: Tahoma,Geneva,sans-serif;">This picture is an example of normative statement, because these kind of posters are also raising their voice about an opinion of how they think the world should be. <span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;">

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<span style="color: #ff0000; font-family: Tahoma,Geneva,sans-serif;">Bibliography: <span style="color: #000000; font-family: Tahoma,Geneva,sans-serif;">

http://www.people.eku.edu/ruppelf/Eco230/circularflow.gif http://www.eoearth.org/article/production_possibility_frontier <span style="font-family: Tahoma,Geneva,sans-serif;"> http://thinkingonthemargin.blogspot.com/2008/02/why-voting-matters.html http://www.fotosearch.com/TGR346/tpd014ta1260/