In the circular-flow diagram, which of the following items does not flow from households to firms?
A. revenue B. Labor, land and capital. C. factors of production D. profit E. A, B and C.
Labor, land, and capital Income
Journal AssignmentCircular Flow Diagram

Draw a circular flow diagram. Identify the parts of the model that correspond to the flow of goods and services and the flow of dollars for each of the following activities:

Economic Models
Economists use models to simplify reality in order to improve our understanding of the world. As simplifications of reality, models need assumptions. Models start small and then grow in increasing complexity.
on the individual
parts of the economy.

How households and firms make decisions and how they interact in specific markets
Macroeconomics
looks at the economy as
Positive versus Normative Analysis
Positive
statements are statements that describe the world as it is.
Called
descriptive analysis
Normative
Called
statements are statements about how the world should be.

In the markets for goods and services in the circularflow diagram

A. households and firms are both buyers. B. households and firms are both sellers. C. households are buyers and firms are sellers. D. households are sells and firms are buyers. E. all of the above are wrong.
prescriptive analysis
Why Economists Agree and Disagree
We
agree on the methodology, but not on the underlying assumptions underlying incentives and behavior.
The Production Possibilities Frontier
Quantity of Computers Produced
3,000
D
2,200 2,000
C
A
1,000
B
0
300
600 700
1,000
Quantity of Cars Produced
The Production Possibilities Frontier
The Economist as a Scientist
The economic way of thinking . . .
Involves
thinking analytically and objectively. Makes use of the scientific method.
Involves the use of abstract models to focus the discussion on a main idea or theme in the complexity of the real world. To apply the scientific method in economics, assumptions are used to make the world easier to understand.
Quantity of Computers Produced
3,000
D
2,200 2,000
C
A
Production possibilities frontier
1,000
B
0
300
600 700
1,000
Quantity of Cars Produced
Concepts Illustrated by the Production Possibilities Frontier
Market for Goods and Services
Spending Goods & Services bought
Firms
Households
Inputs for production Wages, rent, and interest
Market for Factors of Production
Scarcity Efficiency
Tradeoffs
Opportunity
Cost Economic Growth
Quantity of Computers Produced 4,000
The Production Possibilities Frontier
An outward shift in the production possibilities frontier
Thinking Like an Economist
Chapter 2
Economics trains you to. . . .
Be
mindful about the choices that you make. Evaluate the cost of individual and social choices. Examine and understand how certain events and issues are related. But there is the issue of terminology, some math, and GRAPHS, GRAPHS AND SOME MORE GRAPHS!

Two of the Most Basic Economic Models Are
The Circular Flow Diagram The Production Possibilities Frontier.

The Circular-Flow Diagram
Revenue Goods & Services sold

Factors of production are
A. the mathematical calculations firms make in determining their optimal production levels. B. social and political conditions that affect production. C. the physical relationships between economic inputs and outputs. D. Inputs of the production process.

In economics, capital refers to
A. the finances necessary for firms to produce their products. B. buildings and machines used in the production process. C. the money households use to purchase firms’ output. D. stocks and bonds. E. money
Two Roles of Economists
When
they are trying to explain the world, they are scientists. When they are trying to change the world, they are policymakers.
Example-No Child Left Behind and Test Scores.
Economists build economic models by
A. Generating data. B. Conducting controlled experiments in a lab. C. Making assumptions. D. Reviewing statistical forecasts. E. Equations or diagrams.
The Production Possibilities Frontier
•Shows the various combinations of two goods that can be produced by one firm. •Assumes two goods •Assumes fixed technology and fixed factors of production.