Microeconomics Exam Review
Economics Exam Review
Chapters 2, 3, 4, 5, 6, 7, 8, 13, 14, 15, 16, 17, 21
Chapter 2: Thinking like an economist
Scientific Method- Development and testing of theories about how the world works. This is applicable to studying a nations economy. * Theory and observation, economists collect and analyze data since experiments are often difficult in economics. * Economists make do with whatever data the world happens to give them * Natural experiments offered by history, considering many historical episode and evaluating economy of the past and economic theories of present
-Economists make assumptions; simplify the complex world and make it easy to understand
E.g. to study international trade, assume the world consists of only two countries to focus our thinking
-Different assumptions answer different questions and using different assumptions when studying the short-run and long run effects of a change
-Economists use models composed of diagrams and equations to simplify reality in order to improve our understanding of it
Circular Flow Diagram
-Economy is simplified, Two types of decision makers; households and firms.
-Firms produce goods and services using inputs (factors of production)
-Households own the factors of production and consume goods/services
-They interact in two different markets; Markets for goods and services where households are buyers and firms are sellers. Markets for the factors of production where households are sellers (provide inputs that firms use to produce goods/services) and firms are buyers.
-Inner loop of circle reps flows of inputs and outputs
-Outer loop reps corresponding flow of dollars
-More complex circle flow diagram includes roles of government and international trade
Production Possibilities Frontier
-Graph that shows the various combinations of output that the economy can possibly produce given the available factors of production and the available production technology that firms can use
Chapters 2, 3, 4, 5, 6, 7, 8, 13, 14, 15, 16, 17, 21
Chapter 2: Thinking like an economist
Scientific Method- Development and testing of theories about how the world works. This is applicable to studying a nations economy. * Theory and observation, economists collect and analyze data since experiments are often difficult in economics. * Economists make do with whatever data the world happens to give them * Natural experiments offered by history, considering many historical episode and evaluating economy of the past and economic theories of present
-Economists make assumptions; simplify the complex world and make it easy to understand
E.g. to study international trade, assume the world consists of only two countries to focus our thinking
-Different assumptions answer different questions and using different assumptions when studying the short-run and long run effects of a change
-Economists use models composed of diagrams and equations to simplify reality in order to improve our understanding of it
Circular Flow Diagram
-Economy is simplified, Two types of decision makers; households and firms.
-Firms produce goods and services using inputs (factors of production)
-Households own the factors of production and consume goods/services
-They interact in two different markets; Markets for goods and services where households are buyers and firms are sellers. Markets for the factors of production where households are sellers (provide inputs that firms use to produce goods/services) and firms are buyers.
-Inner loop of circle reps flows of inputs and outputs
-Outer loop reps corresponding flow of dollars
-More complex circle flow diagram includes roles of government and international trade
Production Possibilities Frontier
-Graph that shows the various combinations of output that the economy can possibly produce given the available factors of production and the available production technology that firms can use