Global Economics - Chapter 2: The Economist as a Scientist and Policy Advisor

Flashcards covering key definitions and concepts from the lecture on economists' roles, economic models, the circular-flow diagram, the production possibilities frontier, and the distinction between microeconomics, macroeconomics, positive, and normative statements.

Economists' Roles

Scientists (explaining the world) and Policy Advisors (improving the world).

Scientific Method (in Economics)

Dispassionate development and testing of theories about how the world works, involving devising theories, collecting data, and analyzing data.

Assumptions (in Economics)

Simplifications economists make to understand a complex world and build models.

Economic Models

Simplified representations of reality, built with assumptions, used to improve understanding.

Circular-Flow Diagram

A visual model of the economy showing how dollars flow through markets among households and firms.

Households (in Circular-Flow)

Decision makers that own and sell factors of production, and buy and consume goods and services.

Firms (in Circular-Flow)

Decision makers that hire and use factors of production, and produce and sell goods and services.

Market for Goods and Services

A market where goods and services are bought and sold; firms are sellers, households are buyers.

Market for Factors of Production

A market where inputs like labor, land, and capital are bought and sold; households are sellers, firms are buyers.

Factors of Production

The inputs used to produce goods and services, such as labor, land, and capital.

Production Possibilities Frontier (PPF)

A graph that shows various combinations of outputs an economy can possibly produce given available factors of production and technology.

Efficient Production (on PPF)

Points on the PPF where the economy is getting all it can from its scarce resources, meaning all resources are fully utilized.

Inefficient Production (on PPF)

Points inside the PPF where some resources are underutilized, meaning the economy could produce more of both goods.

Not Feasible Production (on PPF)

Points outside the PPF that cannot be achieved with the economy's current resources and technology.

Tradeoff (on PPF)

The necessity of sacrificing some of one good to gain more of another when moving along the PPF.

Opportunity Cost (on PPF)

The slope of the PPF, representing the amount of one good that must be given up to produce an additional unit of another good.

Economic Growth (on PPF)

An outward shift of the PPF, indicating an economy's ability to produce more of all goods due to increased resources or improved technology.

Constant Opportunity Cost

Occurs when the PPF is a straight line, meaning the amount of one good sacrificed for another remains constant.

Increasing Opportunity Cost

Occurs when the PPF is bowed outward, meaning as more units of a good are produced, increasingly larger amounts of the other good must be sacrificed.

Microeconomics

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

Macroeconomics

The study of economy-wide phenomena, including inflation, unemployment, and economic growth.

Positive Statements

Descriptive statements that attempt to describe the world as it is and can be confirmed or refuted by examining evidence.

Normative Statements

Prescriptive statements that attempt to prescribe how the world should be and involve value judgments.

Economists in Washington

Professionals who advise the president and Congress on economic policy, including tax policy, spending, labor markets, antitrust laws, and monetary policy through various offices like the Council of Economic Advisers and the Federal Reserve.