PowerPoint Presentations for

Principles of Microeconomics
Sixth Canadian Edition
by Mankiw/Kneebone/McKenzie

Adapted for the

Sixth Canadian Edition by

Marc Prudhomme
University of Ottawa

THINKING LIKE
AN ECONOMIST
Chapter 2

Copyright 2014 by Nelson Education Ltd.

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THINKING LIKE AN ECONOMIST

Before delving into the substance and details of
economics, it is helpful to have an overview of how
economists approach the world.
This chapter, therefore, discusses the fields
methodology.

What is distinctive about how economists confront a

question?
What does it mean to think like an economist?
Copyright 2014 by Nelson Education Ltd.

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THE ECONOMIST AS SCIENTIST

Economists try to address their subject with

a scientists objectivity.

Copyright 2014 by Nelson Education Ltd.

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The Scientific Method

The scientific method involves
observation, theory, and more
observation.
Economists use theory and
observation like other scientists, but
they do face an obstacle that makes
their task especially challenging:

Copyright 2014 by Nelson Education Ltd.

Thinkstoc
k

Experiments are often difficult in

economics.

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The Role of Assumptions

Assumptions can simplify the complex world and
make it easier to understand.
The art in scientific thinking is deciding which
assumptions to make.

Copyright 2014 by Nelson Education Ltd.

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Economic Models
Economists also use models to learn about the
world that are most often composed of diagrams
and equations.
Economic models omit many details to allow us
to see what is truly important.
All the models are built with assumptions.
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Our First Model:

The Circular-Flow Diagram
Circular-Flow Diagram: a visual model of the
economy that shows how dollars flow through
markets among households and firms

Copyright 2014 by Nelson Education Ltd.

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FIGURE 2.1:

The Circular Flow

Copyright 2014 by Nelson Education Ltd.

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Our Second Model:

The Production Possibilities Frontier
Production Possibility Frontier: a graph that
shows the combinations of output that the
economy can possibly produce given the
available factors of production and the
available production technology

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FIGURE 2.2:

The Production Possibilities Frontier

Copyright 2014 by Nelson Education Ltd.

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Active Learning

Production Possibilities Frontier Example

Production
Point
on
Comgraph puters Wheat
A

500

400

1,000

250

2,500

100

4,000

5,000

D
C
B
A

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Active Learning
Discussion Questions

A. On the graph, find the point that represents

(100 computers, 3,000 tons of wheat), label it F.
Would it be possible for the economy to produce this combination
of the two goods? Why or why not?

B. Next, find the point that represents

(300 computers, 3,500 tons of wheat), label it G.
Would it be possible for the economy to produce this combination
of the two goods?

Copyright 2014 by Nelson Education Ltd.

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 Point F: 100 computers,

3,000 tons wheat

Point F requires 40,000

hours of labour.
Possible but not efficient:
could get more of either
good without sacrificing
any of the other

Wheat
(tons)
6,000
5,000
4,000
3,000
2,000
1,000
0
0

100 200 300 400 500 600

Computers

Copyright 2014 by Nelson Education Ltd.

Wheat
(tons)
6,000
5,000
4,000
3,000
2,000
1,000
0
0

100 200 300 400 500 600

Computers

Copyright 2014 by Nelson Education Ltd.

FIGURE 2.3:

A Shift in the Production Possibilities Frontier

Copyright 2014 by Nelson Education Ltd.

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Microeconomics and Macroeconomics

Microeconomics: the study of how
households and firms make decisions and
how they interact in markets

Macroeconomics: the study of economywide phenomena, including inflation,

unemployment, and economic growth

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QuickQuiz
In what sense is economics like a science?

Draw a production possibilities frontier for a

society that produces food and clothing.
Show an efficient point, an inefficient point,
and an infeasible point.
Show the effects of a drought.
Define microeconomics and macroeconomics.
Copyright 2014 by Nelson Education Ltd.

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