? 2009 South-Western, a part of Cengage Learning, all rights reserved C H A P T E R Thinking Like An Economist Thinking Like An Economist E conomics P R I N C I P L E S O F P R I N C I P L E S O F N. Gregory N. Gregory Mankiw Mankiw Premium PowerPoint Slides by Ron Cronovich 2 In this chapter, In this chapter, look for the answers to these questions: look for the answers to these questions: ? What are economists ’ two roles? How do they differ? ? What are models? How do economists use them? ? What are the elements of the Circular-Flow Diagram? What concepts does the 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? 1 THINKING LIKE AN ECONOMIST 2 The Economist as Scientist ? Economists play two roles: 1. Scientists: try to explain the world 2. Policy advisors: try to improve it ? In the first, economists employ the scientific method , the dispassionate development and testing of theories about how the world works. THINKING LIKE AN ECONOMIST 3 Assumptions & Models ? Assumptions simplify plex world, make it easier to understand. ? Example: To study international trade, assume two countries and two goods. Unrealistic, but simple to learn and gives useful insights about the real world. ? Model: a highly simplified representation of a plicated reality. Economists use models to study economic issues. THINKING LIKE AN ECONOMIST 4 Some Familiar Models A road map THINKING LIKE AN ECONOMIST 5 Some Familiar Models A model of human anatomy from high school biology class THINKING LIKE AN ECONOMIST 6 Some Familiar Models A model airplane THINKING LIKE AN ECONOMIST 7 Some Familiar Models The model teeth at the dentist ’ s office Don ’ t forget to floss! THINKING LIKE AN ECONOMIST 8 Our First Model: The Circular-Flow Diagram ? The Circular-Flo
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