Chap_02.ppt

1、,Thinking Like an Economist,Chapter 2,Copyright 2001 by Harcourt, Inc.All rights reserved. Requests for permission to make copies of any part of thework should be mailed to: Permissions Department, Harcourt College Publishers,6277 Sea Harbor Drive, Orlando, Florida 32887-6777.,2,LEARNING OBJECTIVES:

2、,By the end of this chapter, students should understand: how economists apply the methods of science. how assumptions and models can shed light on the world. two simple models the circular flow and the production possibilities frontier.,3, the difference between microeconomics and macroeconomics. th

3、e difference between positive and normative statements. the role of economists in making policy. why economists sometimes disagree with one another.,4,Every field of study has its own terminology,Mathematics,Psychology,Law,5,Every field of study has its own terminology,Economics,Supply,Demand,Elasti

4、city,Consumer Surplus,Comparative advantage,Opportunity cost,Deadweight loss,6,Economics trains you to. . . .,Think in terms of alternatives. Evaluate the cost of individual and social choices. Examine and understand how certain events and issues are related.,7,The Economist as a Scientist,The econo

5、mic way of thinking . . . Involves thinking analytically and objectively. Makes use of the scientific method.,8,Economists follow the scientific method. 1.Observations help us to develop theory. 2.Data can be collected and analyzed to evaluate theories. 3.Experiments are more difficult in economics

6、than in physical science because controlled experiments cannot be used.,9,The Scientific Method,Uses abstract models to help explain how a complex, real world operates. Develops theories, collects, and analyzes data to prove the theories.,Observation, Theory and More Observation!,10,The Role of Assu

7、mptions,Economists make assumptions in order to make the world easier to understand. The art in scientific thinking is deciding which assumptions to make. Economists use different assumptions to answer different questions.,11,Assumptions make the world easier to understand. 1. Example: to understand

8、 international trade, it may be helpful to start out assuming that there are only two countries in the world producing only two goods. Once we understand trade between these two countries, we can extend the analysis to a greater number of countries and goods. 2. Most assumptions will be somewhat unr

9、ealistic but will have small effects on the actual outcome of the answer.,12,There are two types of assumptions in a model: simplifying assumptions and critical assumptions. Simplifying assumption Any assumption that makes a model simpler without affecting any of its important conclusions. Critical

10、assumption Any assumption that affects the conclusions of a model in an important way.,13,Economists use economic models to explain the world around us. Model：An abstract representation of reality. Most economic models are composed of diagrams and equations. The goal of a model is to simplify realit

11、y in order to increase our understanding. This is where the use of assumptions is helpful.,14,The Economic Way of Thinking,Includes developing abstract models from theories and the analysis of the models. Uses two approaches:,Descriptive (reporting facts, etc.) Analytical (abstract reasoning),15,Eco

12、nomic Models,Economists use models to simplify reality in order to improve our understanding of the world Two of the most basic economic models include:,The Circular Flow Model,The Production Possibilities Frontier,16,The Circular-Flow Model,The circular-flow model is a simple way to visually show t

13、he economic transactions that occur between households and firms in the economy.,17,The Circular-Flow Diagram,Firms,Households,Market for Factors of Production,Market for Goods and Services,18,The Circular-Flow Diagram,Households Buy and consume goods and services Own and sell factors of production,

14、Firms Produce and sell goods and services Hire and use factors of production,19,The Circular-Flow Diagram,Markets for Factors of Production Households sell Firms buy,Markets for Goods they are questions of fact that can be answered by recourse to the relevant data. Even here, however, some judgment

15、is inevitable. For example, what constitutes small business? How one defines small business directly determines which data one examines, which may in turn influence the answer to the original question about the role of “small” business in promoting growth.,58,Likewise, what constitutes a “severe dam

16、per”? This is a speculative statement; it implies that the small business sector performed worse than it would have had various regulations not been in place. Were these regulations therefore excessive? Did they stifle the economy? Each of these questions involves an implicit value judgment, even wh

17、en the facts surrounding the issue are not in dispute.,59,Economists in Washington . . .,. . . serve as advisers in the policymaking process of the three branches of government: Legislative Executive Judicial,60,Why Economists Disagree,They may disagree on theories about how the world works. They ma

18、y hold different values and, thus, different normative views.,61,Examples of What Most Economists Agree On,A ceiling on rents reduces the quantity and quality of housing available. Tariffs and import quotas usually reduce general economic welfare.,62,Summary,In order to address subjects with objectivity, economics makes use of the scientific method. The field of economics is divided into two subfields: microeconomics and macroeconomics.,63,Summary,Economics relies on both positive and normative analysis. Positive statements assert how the world “is” while normative statements as