Ch. 2 Flashcards
In what sense is economics like a science?
The essence of science is the dispassionate development and testing of theories about how the world works.
Define microeconomics
The study of how households and firms make decisions and how they interact in specific markets
Define macroeconomics
The study of economy-wide phenomena
An economic model is
A simplified representation of some aspect of the economy
Name three parts of government that regularly rely on advice from economists
The president, congress, and the federal reserve
Why might economic advisers to the president disagree about a question of policy?
Because they have different values
The circular-flow diagram illustrates that, in markets for the factors of production
Households are buyers and firms are sellers
A point inside the production possibilities curve is
Feasible but not efficient
Why do economists make assumptions?
Assumptions can simplify the complex world and make it easier to understand
Should an economic model describe reality exactly?
Yes, they simplify reality to improve our understanding of it.
What are the two subfields into which economics is divided?
Macroeconomics & microeconomics
What is the difference between a positive and normative statement?
How we judge their validity.
