Quiz 2: Thinking Like an Economist
Economic Model: Economic modeling refers to a rational, summary template to help systematize the analyst's view. An economic model cannot illustrate reality accurately because it would be too difficult to understand. A model is a simplification that allows the economist to see what is truly important. In other words, economic models refers the simplied version of reality. In a market, one purpose the economic ideas sufficiently explict and concrete. Hence, option 'c' is correct.
a) Flow of Good service:- Flow of Good in the form of milk takes place from Firm to Miss Selena; shown as red color arrows. Flow of Dollar:- Flow of dollar takes place from Miss. Selena to Firm; shown as green color arrow. b) Flow of service:- Mr. Stewart is a household providing labor (factor of production) to the fast food restaurant (firm). Therefore, there will be a flow of service from Stewart to firm. This is shown in the below diagram as red color arrows. Flow of Dollar:- Mr. Stewart is earning income and the firm is paying in the form of wages. Flow of dollar as factor payments takes place from Firm to Mr. Stewart. This is shown as green color arrows. c) Flow of service:- Miss. Shanna is receiving service from the firm in the form of hair cut. Therefore, a flow of service from firm takes place and it is represented as red color arrows. Flow of Dollars:- Miss. Shanna pays for the haircut. Therefore, dollars flows from Miss Shanna to the firm. This is shown as green color arrow in the below diagram. d) Flow of service : Sally provided necessary factor of production in the form of capital. Therefore, the flow of service is from household Miss.Sally to the firm. Moreover, it is shown as red color arrow in the below figure. Flow of Dollar :- Firm pays Miss. Sally for her services in the form of returns (factor payments). Therefore, dollar flows from Firm to Miss. Sally. This is shown as green color arrow in the below diagram.
Economics is like a science because it addresses its subject with a scientist's objectivity. Economists study the economy in much the same way as physicists study matter and as biologists approach the study of life. The essence of science is the scientific method, i.e., observation and testing. Scientists devise theories, collect data, and analyze these data in order to verify or refute theories. This method of inquiry is applicable to the study of a nation's economy as it is to the study of Earth's gravity and species evolution. Therefore, economics is like a science because economists use theory and observation like other physical scientists.