2、rrththeeansanswerswerstotoththeseseequesquesttionsions::§What are economists’ two roles? Howdo theydiffer? §What are models? Howdo economistsuse them? §What are theelements oftheCircularFlowDiagram? What concepts doesthediagram illustrate? §Howisthe ProductionPossibiliti
3、esFrontierrelated to opportunitycost? Whatotherconceptsdoesitillustrate? §What isthedifference between microeconomicsandmacroeconomics? Between positive and normative?1TheEconomistasScientist§Economistsplaytwo roles:1.Scientists:tryto explaintheworld2.Policyadvisors:tryt
4、o improve it§In thefirst,economistsemploythescientificmethod,the dispassionatedevelopmentand testing oftheoriesabouthowthe world works.THINKING LIKE AN ECONOMIST2Assumptions&Models§Assumptionssimplifythe complexworld,make iteasier to understand.§Example:Tostudyinternationa
5、l trade,assume two countriesandtwo goods.Unrealistic,butsimple tolearn and givesusefulinsightsaboutthereal world.§Model:a highlysimplified representation ofa more complicatedreality.Economistsuse modelsto studyeconomicissues.THINKING LIKE AN ECONOMIST3SomeFamiliarModelsA r
6、oad mapTHINKING LIKE AN ECONOMIST4SomeFamiliarModelsA model ofhuman anatomyfromhigh schoolbiologyclassTHINKING LIKE AN ECONOMIST5SomeFamiliarModelsA model airplaneTHINKING LIKE AN ECONOMIST6SomeFamiliarModelsThe model teethatthe Don‛tforgetdentist’soffice tofloss!THINKING
7、LIKE AN ECONOMIST7OurFirstModel:TheCircularFlowDiagram§TheCircularFlowDiagram:avisual model ofthe economy,showshowdollarsflowthrough marketsamong householdsandfirms§Two typesof“actors”:§households§firms§Two markets:§themarket forgoodsand services§themarket for“factorsof pr
8、oduction”THINKING LIKE AN ECONOMIST8FactorsofProduction§Factors of production:the resourc
