CHAPTER+2+.+THINKING+LIKE+AN+ECONOMIST+;)

=Thinking Like an Economist =

THE ECONOMIST AS SCIENTIST 

__//**The Scientific Method: Observation, Theory, and More Observation**//__ - Economists look back at history and experiment their theories. - The economists collect money and data in order to test their theories (inflation).

**__//The Role of Assumptions//__** - Assumptions simplify the world and make it easier to understand. - One needs to pay his/her money in order to "consume" a certain product. - Economists use assumptions to answer questions& for their studies.

__//**The Circular Flow Diagram**//__  The Circular Flow Diagram shows how the money flows through the market, among households and firms. In this case, the households are sellers and the firms are buyers. The inner loop of this diagram represents the flow of inputs(Factors of production such as labor, land, and capital)/outputs, and the outer loop represents the flow of money (dollars).

 Our Second Model: The Production Possibilities Frontier A production possibilities frontier is a graph that shows the various combination of outputs, as well as the efficient levels of production. media type="youtube" key="c24MBi26tgQ" height="344" width="425"

__//**Microeconomics and Macroeconomics**//__ 
 * Microeconomics: Study of how households and firms make decisions and interact in the market.
 * Macroeconomics: Study of economy-wide phenomena.

 THE ECONOMIST AS POLICY ADVISER

__//**Positive VS. Normative Analysis**//__
 * Positive statements: Claims that attempt to describe the world as it is.
 * Normative statements: Claims that attempt to prescribe how the world should be.

= //Glossary// = * Production Possibilities Frontier: Graph that shows the combination of output that the economy can possibly produce given the available resources.


 * Microeconomics: Study of how households and firms make decisions and how they interact in markets.


 * Macroeconomics: Study of economy-wide phenomena.