【精选】02_Think Like an Economist_MV.pdf

THE ECONOMIST AS A SCIENTIST The economic way of thinking . . . Involves thinking analytically and objectively. Makes use of the scientific method. Develops theories, collects and analyzes data to evaluate the theories. Uses abstract models to help explain how a complex, real world operates. The Role of Assumptions • In constructing a model, we focus on some factors and ignore some others. This is called making assumptions. • Why do we need assumptions? • make the model simpler and more manageable • make the essential factors more visible • The art in scientific thinking is deciding which assumptions to make. • Economists use different assumptions to answer different questions. Economic Models • Economists use models to simplify reality in order to improve our understanding of the world. • Two of the most basic economic models are: • The Circular Flow Diagram • The Production Possibilities Frontier Our First Model: The Circular-Flow Diagram The circular-flow diagram (循环流量图) is a visual model of the economy that shows how dollars flow through markets among households and firms. Figure 1 The Circular Flow MARKETS Revenue FOR Spending GOODS AND SERVICES •Firms sell Goods Goods and and services •Households buy services sold bought