Chapter 2 Thinking like an Economist The Economist as Scientist circular flow diagram visual model of the economy that shows how dollars flow thru markets In the markets for goods and services households are buyers and firms are sellers In the markets for the factors of production households are sellers and firms are buyers Production Possibilities Frontier production possibilities frontier shows combos of output that an economy can produce An outcome is said to be efficient if the economy is getting all it can from the scarce resources it has available Micro and Macroeconomics microeconomics study of how households firms make decisions how they interact in markets macroeconomics study of economy wide phenomena inflation unemployment economic growth Economist as Policy Advisor positive statements claims that attempt to describe the world as it is normative statements claims that attempt to prescribe how the world should be
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