Economists devise theories, collect data, and then analyze the data in an attempt to verify or refute
their theories
The following are a few ways that an economists uses science procedures to asses an economy:
1. Observation theory, and more observation
§ Economists can only observe data that happened in the past and data that is currently going
on. They cannot “experiment” on an economy to get useful data.
2. The role of assumptions
§ Economists make assumptions in order to make a situation simpler and easier to
understand.
§ Economists use different assumptions when studying the short and long-run effects of a
change in the quantity of money.
3. Economic models
§ Economists use models to learn about the world, these models are composed of diagrams
and equations.
§ Models are built with assumptions
§ The circular-flow diagram:
Revenue Spending
MARKETS FOR GOODS
AND SERVICES
Goods and Goods and
services sold services bought
FIRMS HOUSEHOLDS
§ Produce and sell goods § Buy and consume
and services goods and services
§ Hire and use factors of § Own and sell factors of
production production
Factors of Labour, land,
production and capital
MARKETS FOR FACTORS
OF PRODUCTION
Wages, rent, Income
and profit
§ The production possibilities frontier
• A graph that shows the combinations of output that the economy can possibly
produce given the available factors of production and the available production
technology
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller choprakritee. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $7.49. You're not tied to anything after your purchase.