Economist function as a scientist and policy makers while alternating between the two. However their role as a scientist is limited as experiments are either incredibly difficult to do or they must rely on data they gather from what has already occurred. In terms of policy they must make an assumption of what they think will occur but this assumption can only really be based off of previous unpredictable behavior. To get the data for their assumptions they make use of various tools.
The Circular-Flow Diagram is a simple model used to explain the very basis of the economy. The firms will create goods that are then shipped to the markets which is in turn bought by the people who then give money in which is used to buy products from firms that hire people to create their products. This can be seen in any market.
The Production Possibilities Frontier is a chart used to determine the trade-offs made in the production of products. To create more of one product one must make less of another and the frontier line represents the maximum possible output which cannot be exceeded unless the means of production are altered.
Positive and Normative statements are essentially the facts and opinions of the market. Positive statements are usually derived from the observation of data and can be easily defended. Normative statements are usually one's opinion on what should be done to change the economy and while it can be defended, it can also be attacked.
Different perceptions of the economy also tends to come from how one perceives its current state to be. If the speaker is ignorant of its gritty reality then they will probably make illogical statements on it. An economist that lives in or witnesses conditions that are largely ignored will be able to make more realistic suggestions.
Overall this chapter has taught me more about the market and that changing the market is not always a simple black and white answer.
No comments:
Post a Comment