Econ 201 Donna Bueckman MWF 1:25-2:15 Lecture 1/12 Economic Systems -basic model of market system = Circular Flow Model-models- simplify reasoning • deductive reasoning • inductive reasoning -assumptions- simplify complex world -Circular Flow Model- visual model of the economy, shows how dollars flow through markets among households and firms • “actors” - households and firms • includes 2 markets:-market for services and goods• services = larger portion of this market • market for factors of production -factors of production- resources the economy uses to produce good and services(G&S) …these include:• land- natural resources • labor- human workers and special skills • capital- buildings and machines -economcs- how society manages its scarce resources• microeconomics- foxuses on individual decision makers• macroeconomics- study of economy-wide phenomena -role of an economist• scientists- try to explain the world (use scientific method)• policy advisors- try to improve economyCircular-flow Diagram-• households- own factors of production; sell/rent to them -stockholders-own the company • firms- buy/hire factors of production and use them to produce G&S-sell G&S to