1. Chapter 1 The Economic Way of Thinking
Section 4
The Economists Toolbox

2. The Economists Toolbox
Section-4
The Economists Toolbox
Working with Data
KEY CONCEPTS
Statistics — numerical data or information
— show patterns of human behavior
Economic models help organize and interpret data

3. Working with Data Using Charts and Tables Using Graphs
Economists look for statistical relationships, trends, connections
Charts and tables display data in rows and columns
— can reveal patterns by showing numbers in relation to other numbers
Using Graphs
Graphs use two sets of variables: along horizontal, vertical axes
Line graphs useful for showing changes over time
— in economics, line referred to as a curve, even if straight
Bar graphs good for showing comparisons
Pie graph (or pie chart, circle graph) shows numbers in relation to whole
Using Economic Models
Economic models focus on a limited number of variables
— thus based on assumptions and use simplification
— expressed in words, graphs, equations

4. Microeconomics and Macroeconomics
KEY CONCEPTS
Microeconomics
— studies behavior of individual players in an economy
— includes individuals, families, businesses
Macroeconomics
— studies behavior of economy as a whole
— topics include inflation, unemployment, aggregate demand and aggregate
supply

5. Positive Economics and Normative Economics
KEY CONCEPTS
Positive economics — describes and explains economic behavior as it is
— uses verifiable facts; does not make judgments
Normative economics — studies what economic behavior should be
— makes value judgments to recommend future actions

6. Positive Economics and Normative Economics
Positive economics uses scientific method
— observe data, hypothesize, test, refine, continue testing
Statements tested against real-world data
— proved (or strongly supported) or disproved (or strongly questioned)

7. Positive Economics and Normative Economics
Normative economics studies facts, asks if course of action is good
Recommendations differ because values they are based on also differ

8. Adam Smith: Founder of Modern Economics
Seeing the Invisible
An Inquiry into the Nature and Causes of the Wealth of Nations, 1776
— challenged mercantilism; argued for free trade
Invisible hand guides free marketplace, benefits sellers and buyers
— people pursue own economic self-interest
— producers sell at prices that satisfy them and that consumers will pay