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    Economists play two roles as scientists and policy advisors. As scientists, they use models and the scientific method to explain how the economy works. Models simplify complex systems to gain insights. One key model is the circular-flow diagram, which shows the flow of dollars between households and firms through goods/services markets and factor markets. It illustrates the interaction of producers, consumers, and factor payments. The production possibilities frontier model demonstrates opportunity costs and tradeoffs between economic goals. Microeconomics analyzes individual parts of the economy at a basic level, while macroeconomics looks at aggregates and the whole system.

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    Economists play two roles as scientists and policy advisors. As scientists, they use models and the scientific method to explain how the economy works. Models simplify complex systems to gain insights. One key model is the circular-flow diagram, which shows the flow of dollars between households and firms through goods/services markets and factor markets. It illustrates the interaction of producers, consumers, and factor payments. The production possibilities frontier model demonstrates opportunity costs and tradeoffs between economic goals. Microeconomics analyzes individual parts of the economy at a basic level, while macroeconomics looks at aggregates and the whole system.

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    3 views1 page

    Micro Economics Lecture 5

    Uploaded by

    mostafa abdo
    Economists play two roles as scientists and policy advisors. As scientists, they use models and the scientific method to explain how the economy works. Models simplify complex systems to gain insights. One key model is the circular-flow diagram, which shows the flow of dollars between households and firms through goods/services markets and factor markets. It illustrates the interaction of producers, consumers, and factor payments. The production possibilities frontier model demonstrates opportunity costs and tradeoffs between economic goals. Microeconomics analyzes individual parts of the economy at a basic level, while macroeconomics looks at aggregates and the whole system.

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    MOSTAFA NOR-EL DIN Micro-Economic English section (1) 5

    Chapter two
    Thinking like an Economist

    In this chapter, look for the answers to these questions:

     What are economists’ two roles? How do they differ?


     What are models? How do economists use models?
     What are the elements of the Circular-Flow Diagram? What concepts does this diagram illustrate?
     How is the Production Possibilities Frontier related to opportunity cost? What other concepts does
    it illustrate?
     What is the difference between microeconomics and macroeconomics? Between positive and
    normative?

    The Economist as Scientist

    Economists play two roles: In the first role, economists employ the scientific
    • Scientists: try to explain the world method: the dispassionate development and testing of
    • Policy advisors: try to improve it theories about how the world works.

    Assumptions & Models

    Assumptions simplify the complex world, make it easier to understand.

    Example:
    When studying international trade, we might assume the world consists of two countries and two
    goods. Very unrealistic, but simplifies the problem and yields useful insights about the more
    complicated real world.

    Economists use models to study economic issues. A model is a highly simplified representation of
    a more complicated reality.

    The Circular-Flow Diagram

    A visual model of the economy shows how dollars flow through markets among
    households and firms.
    Includes
    Two types of “sectors” Two markets
    • households • the market for goods and services
    • firms • the market for “factors of production”

    The factors of production are the resources that the economy uses to produce goods & services.
    They include:
    Labor

    Land

    Capital (buildings & machines used in production)

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