answers+to+chapter2+BTY

 1. How are economists similar to scientists? Just like scientists, economists observe, theorize, observe, and make assumptions. In addition, just like in science there are models and experiments, there are economic models. Although the models can't be actually tested, it is used to predict the economy and it's the closest thing to experiment about economy. 2. What’s the role of the households in the circular flow? In a circular flow, the households buy and consume goods and services,and they own and sell factors of production. Basically, households are sellers in the markets for the factors of production, while in the markets of goods and services, it functions as the buyer.

3. Why do economists use models? Economic models are used to learn about the economy of the world, or even world in general. Although it's not 3D like the scientific models of DNA, the equations and diagrams are efficient to learn about the function of economy. The models are precise, but it's sufficient enough to understand the world better in an economic perspective.

4. What’s the difference between normative and positive assumptions? Normative and positive assumptions are both based on the world. However, it's future vs. the present. Therefore, a normative assumption is the expectations for the world in the future or how it should be. Yet, positive assumption is accepting the world as it is and using it to describe the world.

5. What do the two loops in a circular flow represent? There are two loops in a circular flow diagram. The outer loop deals with money. Therefore, it represents the flow of money in the market.The inner loop represents the good that's being bought and sold.