Unit 2: Thinking Like an Economist
The scientist's toolkit before the models start: assumptions, circular diagrams, production frontiers, positive vs normative claims.
4 topics · 15 questions
Each topic is a path, not a menu: work down it in order and every question builds on the one above. Click any of them to watch the answer draw itself.
The Economist as Scientist
- How it worksHow does an economic model use assumptions to strip away detail and isolate one relationship?
- Common mistakeWhy isn't an economic model a failure just because it leaves most real-world detail out?
- Going furtherWhat happens to a model's usefulness when its assumptions stop matching the real economy it describes?
- Ties togetherHow does the assumption-stripping approach of a model connect to the production possibilities frontier as a simplified picture of a whole economy?
Your turn1 of 2
An economics professor draws a model of the housing market that ignores dozens of real-world details, like the color of each house or the personality of each buyer. A student calls the model a failure because it leaves so much out. Is leaving that detail out actually the point of building the model?The Circular-Flow Diagram
- How it worksHow does the circular-flow diagram split the economy into a market for goods and a market for factors of production?
- Worked exampleWalk me through the path 20 dollars takes when you spend it at a coffee shop and the shop pays its barista.
- Common mistakeWhy doesn't money just pile up on the firm side of the circular flow?
- Ties togetherHow does the circular-flow diagram connect to the idea that GDP measured as spending, income, and output all comes out equal?
Your turn1 of 2
You spend 26 dollars at a coffee shop, and the shop pays its barista 11 dollars of that in wages, keeping the rest as revenue for other costs and profit. How many dollars does the shop keep after paying the barista?The Production Possibilities Frontier
- How it worksHow does a production possibilities frontier bow outward to show increasing opportunity cost?
- Worked exampleFind the opportunity cost of one more unit of healthcare on a production possibilities frontier that trades healthcare against education.
- Common mistakeWhy isn't a point inside the production possibilities frontier just as good as a point on it?
- Going furtherWhat happens to the whole production possibilities frontier when a country gets a better technology?
Your turn1 of 2
A production possibilities frontier moves from 40 units of healthcare and 69 units of education to 60 units of healthcare and 39 units of education. What is the opportunity cost of one more unit of healthcare, in units of education?Positive Analysis, Normative Analysis, and Why Economists Disagree
- How it worksHow does a positive statement about what will happen differ from a normative statement about what should happen?
- Common mistakeWhy doesn't economists disagreeing on television mean economics itself has no real answers?
- Ties togetherHow does the positive-versus-normative split show up again later when the course weighs efficiency against equity?
Your turn1 of 2
One economist says, 'Raising the minimum wage to 15 dollars would reduce employment among the least-skilled workers by roughly 2 percent.' A second economist says, 'The minimum wage should be raised to 15 dollars regardless.' What is the key difference between these two claims?