Thinking like an Economist Mathematicians Psychologists

Thinking like an Economist

Mathematicians

Psychologists

Lawyers

Economics Demand Elasticity Comparative advantage, Consumer surplus Deadweight loss

The Scientific Method: Observation, Theory, and More Observation

The Role of Assumptions

Economic Models

Economic Models

Our first model: The circularflow diagram It’s a visual model of the economy that shows how dollars flow through markets among households and firms.

The circular flow diagram also illustrates the flow of money. Household spend money to buy the goods and services from the firms. In turn, the firms use the revenue from that transaction to buy the factors of production from the household , such as labour. The diagram includes taxes which are paid by both households and firms to the government and returned in the form of subsidies and transfer payments.

Our second model: The production possibilities frontier It is a graph which shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology.

Positive versus 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