Chapter 2-Thinking Like an Economist

Graphing Data
"Economists use three types of graphs to
reveal relationships between variables. They
are:
" Time-series graphs
" Cross-section graphs
" Scatter diagrams
Journal Assignment-
Circular Flow Diagram
# Draw a circular flow diagram.
# Identify the parts of the model that correspond
to the flow of goods and services and the flow
of dollars for each of the following activities:
"Sam pays a storekeeper $1 for a quart of milk.
"Sam gets a quart of milk.
"Sally earns $4.50 per hour working at a fast food
restaurant.
"Sally works at the restaurant.
Two of the Most Basic
Economic Models Are
# The Circular Flow Diagram
# The Production Possibilities Frontier.
The Production Possibilities
Frontier
•Shows the various combinations of two
goods that can be produced by one firm.
•Assumes two goods
•Assumes fixed technology and fixed
factors of production.
The Circular-Flow Diagram
Firms
Revenue
Goods &
Services sold
Market for
Goods
and Services
Spending
Goods &
Services
bought
Households
Quantity of
Computers
Produced
The Production Possibilities
Frontier
3,000
2,200
2,000
C
A
D
Inputs for
production
Wages, rent,
and interest
Market for
Factors
of Production
Labor, land,
and capital
Income
B
1,000
0 300 600 700 1,000
Quantity of
Cars Produced
3
4