ECON 248 2.1 The Scientific Method: Observation, Theory, And More Observation

The dispassionate development and testing of theories about how the world works.

Scientific Method

Economists try to address their subject with a ().

Scientist’s Objectivity

Although economists use theory and observation like scientists, a challenge they face is that conducting economic experiments is (). This is because they usually can’t manipulate values on a whim.

Impractical

() can simplify the complex world and make it easier to understand.

Assumptions

Economists use () in the form of diagrams and equations, ignoring certain parts of the real-world economy to focus on what’s important.

Economic Models

An economic model which is used to show how money flows between households and firms in goods/services market and the factors of production market.

Circular Flow Diagram

Within a circular flow diagram, the only decision makers are () and ().

Households, Firms

Firms produce goods and services via using inputs like land, labour, and capital, called (), which are offered by households. This is also called the market for factors of production.

Factors Of Production

Goods and services made by factors of production are purchased by (). Also called the market for goods and services.

Households

A economic model which shows the various combinations of output for different goods/services in the form of a graph.

Production Possibilities Frontier

The production possibilities frontier allows us to know the maximum amount of (1) and/or (2), that can be made at the sacrifice of making less of a another (1) and/or (2).

Goods, Services

An outcome is said to be () if the economy is getting all it can from the scarce resources it has available.

Efficient

A scenario where an economy is producing less than what it could with the current resources available. For a ppf, inefficient production of goods would be points () the curve.

Inefficiency, Inside

The cost of one thing to receive another thing.

Opportunity Cost

The red line represents a () in the production possibilities frontier, which allows more of both goods to be made.

Shift

The study of how households and firms make decisions and how they interact in specific markets.

Microeconomics

The study of economy-wide phenomena, such as national inflation.

Macroeconomics