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Friedman argued
a skilled billiard
player just feels
subjectively how to
play a good shot.
But if we sought to
describe the shot
this involves
advanced maths.
Economic models
Economists use models to simplify reality in order to
improve our understanding of the world.
Is this unrealistic
object useful?
FIRMS HOUSEHOLDS
Produce and sell Buy and consume
goods and services goods and services
Hire and use factors Own and sell factors
of production of production
Households
Firms sell
Households buy
Households sell
Firms buy
In the circular-flow model
Factors of production
3,000 D
C
2,200
2,000 A
Production
possibilities
frontier
1,000 B
4,000
3,000
2,100 E
2,000
A
The income gains from a higher minimum wage are worth more
than any slight reductions in employment.
NORMATIVE
State governments should be allowed to collect from tobacco
companies the costs of treating smoking-related illnesses among
the poor.
POSITIVE
Why economists disagree
Economists are often seen as argumentative types who
disagree. Often this is exaggerated but
Microeconomics.
Macroeconomics
Summary