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Positive statements
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claims that attempt to describe the world as it is
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circular-flow diagram
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a visual model of the economy that shows how dollars flow through markets among households and firms
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production possibilities frontier
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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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Microeconomics
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the study of how households and firms make decisions and how they interact in markets
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Macroeconomics
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the study of economy-wide phenomena, including inflation, unemployment, and economic growth
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Normative statements
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claims that attempt to prescribe how the world should be
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How is economics a science?
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Why do economists make assumptions?
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Should an economic model describe reality exactly?
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Name a way that your family interacts in the factor market and a way that it interacts in the product market.
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Name one economic interaction that isn't covered by the simplified circular-flow diagram.
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Draw and explain a production possibilities frontier for an economy that produces milk and cookies. What happens to this frontier if disease kills half of the economy's cows?
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Use a production possibilities frontier to describe the idea of "efficiency."
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What are the two subfields into which economics is divided? Explain what each subfield studies.
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What is the difference between a positive and a normative statement? Give an example of each.
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Why do economists sometimes offer conflicting advice to policymakers?
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