1. Chapter 2

2. Why use an Economic model? Economists use economic models to understand much more better. Economic models are the “skeleton” of Data, showing everything into a single model.

3. Positive/Normative statement The example of this would be, saying a price of an item will drop, and also saying since the price will drop, firms should stop manufacturing this certain good. -Positive Statement defines how the current world is. For example, stating the current market price for a certain item is a positive statement; it clearly states how much the price is. -Normative Statement defines how the world should be in the person’s point of view

4. Microeconomics Microeconomics is the study of economics in a more sophisticated, detailed picture; seeing how a number of household or firms manage their scarce resources. To put it in another words, “when looking at the forest, looking at a each tree specifically is Microeconomics.”

5. Circular Flow Click on the video: If the video does not work, click herehere

6. Production Possibilities Frontier Citation Possibility Frontier is how firms use their given scarce resources, to their maximum efficiency. E.g. (The diagram on the right) With the resources given in this diagram (Guns and Butter) the economy can produce a point inside or on the production possibilities frontier, but not outside the frontier (unless trade had occurred). The points of the line (B, D and C) is “efficient” because it maximized the usages of Guns and Butter. Points inside the curve (A) is “inefficient” because it did not maximize the usages of guns and butter and points outside the curve (X) is impossible unless trade had occurred.