Chapter Two: Thinking Like an Economist

Chapter Two: Thinking Like an Economist

  1. How does the use of a very simplified model of the economy such as those found in a production possibilities frontier help you to understand the economy? Did you find it useful? Yes, I find the graph and diagrams describing PPF and Circular Flow helpful and useful. However, I remain skeptical that these simple tools are able to lead myself and the rest of us toward the best answers and policy decisions. My worry and fear are that we use a simplified model that rests on too many assumptions for instance that an exponential growth economy is a good thing or sustainable. In fact, an exponential growth economy as practiced in the USA and many other economies, but its very nature is unsustainable. So then, how do we build in a transition to a circular economy? How do we account for externalities? Why do we assume that unemployment is a bad thing? How do we account for the building social capital? I hope we are able to answer some of these questions throughout this course.

  1. Give an example of something you believed or heard frequently about the economy before reading this chapter.  Did your belief/the comments lead to positive or normative statements? Why? And why does it matter? An example of this that is in the news a lot is international trade - we hear it talked about in terms of winners and losers, but when you make a trade with your local grocery store you both win.  In fact, trades don't occur unless both the buyer and the seller "win". For other economic "myths" just google "economic myths". One thing that I've heard often about our economy is that growth is good, unemployment is bad. I believe these are normative (opinion) statements and not based on science (especially social science). I side more with Bhutan's Gross National Happiness indicator as an important measure of a nation's health, wealth and resilience over the USA's Gross Domestic Product indicator of whether or not the USA is healthy and wealthy. I also know that my brain tends to lean toward normative statements and tends to shy away from positive statements. Throughout this course, I am making an effort to embrace scientific and analytical processes even though my nature resists the time and effort it takes to research and fact check all of the data before making an argument.

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