Chapter 2

Slides

VNP-Econ-Chapter 2
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The Economist as Policy Adviser

Often, economists are asked to explain the causes of economic events. Why, for example, is unemployment higher for teenagers than for older workers? Some- times, economists are asked to recommend policies to improve economic outcomes. What, for instance, should the government do to improve the economic well-being of teenagers? When economists are trying to explain the world, […]

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Microeconomics and Macroeconomics

Many subjects are studied on various levels. Consider biology, for example. Molecular biologists study the chemical compounds that makeup living things. Cellular biologists study cells, which are made up of many chemical compounds and, at the same time, are themselves the building blocks of living organisms. Evolutionary biologists study the many varieties of animals and […]

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Our Second Model: The Production Possibilities Frontier

Most economic models, unlike the circular-flow diagram, are built using the tools of mathematics. Here we use one of the simplest such models, called the production possibilities frontier, to illustrate some basic economic ideas. Although real economies produce thousands of goods and services, let’s assume an economy that produces only two goods—cars and computers. Together, […]

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Our First Model: The Circular-Flow Diagram

The economy consists of millions of people engaged in many activities—buying, selling, working, hiring, manufacturing, and so on. To understand how the economy works, we must find some way to simplify our thinking about all these activities. In other words, we need a model that explains, in general terms, how the economy is organized and […]

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Economic Models

High school biology teachers teach basic anatomy with plastic replicas of the human body. These models have all the major organs: the heart, the liver, the kidneys, and so on. The models allow teachers to show their students very simply how the important parts of the body fit together. Because these plastic models are stylized […]

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The Role of Assumptions

If you ask a physicist how long it would take a marble to fall from the top of a ten-story building, she will likely answer the question by assuming that the marble falls in a vacuum. Of course, this assumption is false. In fact, the building is surrounded by air, which exerts friction on the […]

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The Scientific Method: Observation, Theory, and More Observation

Isaac Newton, the famous 17th-century scientist and mathematician, allegedly became intrigued one day when he saw an apple fall from a tree. This observation motivated Newton to develop a theory of gravity that applies not only to an apple falling to the earth but to any two objects in the universe. Subsequent testing of Newton’s […]

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The Economist as Scientist

Economists try to address their subject with a scientist’s objectivity. They approach the study of the economy in much the same way a  physicist  approaches the study of matter and a biologist approaches the  study  of  life: They devise theories, collect data, and then analyze these data in an attempt to verify or refute their […]

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