Thinking Like an Economist
Every field of study has its own terminology
Mathematics
integrals axioms vector spaces
Psychology
ego id cognitive dissonance
Law
promissory estoppel torts venues
Economics
supply opportunity cost elasticity consumer surplus demand comparative advantage deadweight loss
in psychology, cognitive dissonance is the mental stress or discomfort experienced by an individual who holds two or more contradictory beliefs, ideas, or values at the same time, or is confronted by new information that conflicts with existing beliefs, ideas, or values
the id (Latin for "it") is the unorganized part of the personality structure that contains a human's basic, instinctual drives.
The ego (Latin "I") acts according to the reality principle; i.e. it seeks to please the id's drive in realistic ways that will benefit in the long term rather than bring grief. At the same time, Freud concedes that as the ego "attempts to mediate between id and reality, it is often obliged to cloak the Ucs. [Unconscious] commands of the id with its own Pcs.
In law, estoppel is a set of doctrines in which a court prevents a litigant from taking an action the litigant normally would have the right to take, in order to prevent an inequitable result.
A tort, in common law jurisdictions, is a civil wrong that unfairly causes someone else to suffer loss or harm resulting in legal liability for the person who commits the tortious act, called a tortfeasor.
Thinking Like an Economist
Economics trains you to. . . .
Think in terms of alternatives.
Evaluate the cost of individual and social choices.
Examine and understand how certain events and issues are related.
THE ECONOMIST AS A SCIENTIST
The economic way of thinking . . .
Involves thinking analytically and objectively.
Makes use of the scientific method.
The Scientific Method: Observation, Theory, and More Observation
Uses abstract models to help explain how a complex, real world operates.
Develops theories, collects, and analyzes data to evaluate the theories.
The Role of Assumptions
Economists make assumptions in order to make the world easier to understand.
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 include:
The Circular Flow Diagram
The Production Possibilities Frontier
Our First Model: The Circular-Flow Diagram
The circular-flow diagram is a visual model of the economy that shows how dollars flow through markets among households and firms.
The Circular Flow
 |
The Circular Flow |
Our First Model: The Circular-Flow Diagram
Firms
Produce and sell goods and services
Hire and use factors of production
Households
Buy and consume goods and services
Own and sell factors of production
Our First Model: The Circular-Flow Diagram
Markets for Goods and Services
Firms sell
Households buy
Markets for Factors of Production
Households sell
Firms buy
Our First Model: The Circular-Flow Diagram
Factors of Production
Inputs used to produce goods and services
Land, labor, and capital
Our Second Model: The Production Possibilities Frontier
The production possibilities frontier is 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.
Post a Comment
Thanks You....