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There is a new In the News feature on "Actual Economists and Virtual Realities." Figure A-1 has been
updated.
LEARNING OBJECTIVES:
two simple models—the circular flow and the production possibilities frontier.
15
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
KEY POINTS:
Economists try to address their subject with a scientist’s objectivity. Like all scientists, they make
appropriate assumptions and build simplified models to understand the world around them. Two
simple economic models are the circular-flow diagram and the production possibilities frontier.
The field of economics is divided into two subfields: microeconomics and macroeconomics.
Microeconomists study decision making by households and firms and the interaction among
households and firms in the marketplace. Macroeconomists study the forces and trends that affect
the economy as a whole.
A positive statement is an assertion about how the world is. A normative statement is an assertion
about how the world ought to be. When economists make normative statements, they are acting
more as policy advisers than as scientists.
Economists who advise policymakers sometimes offer conflicting advice either because of differences
in scientific judgments or because of differences in values. At other times, economists are united in
the advice they offer, but policymakers may choose to ignore the advice because of the many forces
and constraints imposed by the political process.
CHAPTER OUTLINE:
3. Using data to evaluate theories is more difficult in economics than in physical science
because economists are unable to generate their own data and must make do with whatever
data are available.
4. Thus, economists pay close attention to the natural experiments offered by history.
1. Example: to understand international trade, it may be helpful to start out assuming that
there are only two countries in the world producing only two goods. Once we understand
how trade would work between these two countries, we can extend our analysis to a greater
number of countries and goods.
2. One important role of a scientist is to understand which assumptions one should make.
3. Economists often use assumptions that are somewhat unrealistic but will have small effects
on the actual outcome of the answer.
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 2/Thinking Like an Economist ❖ 17
To illustrate to the class how simple but unrealistic models can be useful, bring a
road map to class. Point out how unrealistic it is. For example, it does not show
where all of the stop signs, gas stations, or restaurants are located. It assumes that
the earth is flat and two-dimensional. But, despite these simplifications, a map
usually helps travelers get from one place to another. Thus, it is a good model.
2. The goal of a model is to simplify reality in order to increase our understanding. This is
where the use of assumptions is helpful.
Figure 1
1. Definition of circular-flow diagram: a visual model of the economy that shows how
dollars flow through markets among households and firms.
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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silencieuses, comme embaumées dans leur ombre ; et les chaises,
du style austère d’alors, ont l’air d’attendre en rang, contre les murs,
ceux qui ne reviendront plus : les pas feutrés de la vieille Ajaccienne
qui nous sert de cicerone troublent seuls la paix figée des salles
obscures et muettes. Et pourtant que d’ambitions s’agitèrent entre
ces murailles, que de rêves y battirent de l’aile, et les destinées du
monde entier y furent contenues !
Dans l’angle d’une chambre, qu’on dit être celle du sous-
lieutenant de Brienne, une trappe, celle par laquelle, en 1793,
Bonaparte, la maison étant cernée, échappa aux poursuites de
Paoli, et, sur la cheminée de la chambre de Madame mère, à côté
de la couronne en lauriers d’or du premier Consul, une ravissante
crèche en ivoire, que Bonaparte rapporta d’Égypte en 1790,
souvenirs résumant presque la carrière sentimentale du héros, sa
haine tenace et violente de l’Anglais, ses premières victoires et son
grand, son inaltérable amour des siens, symbolisés par la crèche
d’ivoire et les lauriers consulaires rapportés à la maison natale et
offerts à la mère !
Que d’opprimants et mélancoliques souvenirs !
C’est peut-être cette grande ombre planante sur Ajaccio qui tisse
comme un voile de tristesse atténuée sur la neige de ses montagnes
et le bleu lumineux de son golfe !
La Corse, reconnaissante à Napoléon, lui a dressé partout des
statues, emplissant ses places et ses promenades d’effigies en
marbre du César : Cours Grandval, sur cette place des Palmiers,
ombreuse et fraîche, ensoleillée et verte selon le jour et l’heure, et
dont les Ajacciens sont si fiers, la statue en toge du premier consul
domine quatre lions de granit, dont la gueule vomit l’eau d’une
fontaine ; sur l’esplanade du Diamant, la place de la Concorde de la
ville, et dont toute la longueur commande la mer, Napoléon s’érige
encore, cette fois César équestre, escorté de ses quatre frères,
Joseph, Lucien, Louis et Jérôme, qui, de leurs silhouettes de bronze,
lui font une garde d’honneur. C’est le grand monument
commémoratif d’Ajaccio, et, sculptés dans la lumière, profilés en noir
sur l’azur méditerranéen, les cinq Buonaparte regardent l’horizon et
semblent veiller en sentinelles sur la patrie corse ; l’œil darde vers
l’Anglais qui viendra par la mer. Tout cela est bien de l’immortalité et
de la gloire, mais nulle part pourtant je n’ai senti frémir la grande
ombre envolée comme dans la petite maison et les pièces obscures
de la rue Létizia.
FLEUR D’EXIL
Marcagi.
J. L.