Chapter 2 Of Book : Thinking Like An Economist

Question 1

Endogenous variable

Answer 1

A variable whose value is determined within the model.

Question 2

Exogenous variable

Answer 2

A variable whose value is determined outside the model.

Question 3

First model: the circular-flow diagram

Answer 3

•Firms:
• Produce and sell goods and services
• Hire and use factors of production

•Households:
• Buy and consume goods and services
• Own and sell factors of production

•Markets for Goods and Services:
• Firms sell
• Households buy

•Markets for Factors of Production:
• Households sell
• Firms buy

•Factors of Production:
• Inputs used to produce goods and services
• Land, labour, and capital

Question 4

Positive and normative statements:

Answer 4

•Positive statements: statements that attempt to describe the world as it is.Called descriptive analysis

•Normative statements: statements about how the world should be.