1. Thinking Like an Economist2
Thinking Like an Economist

2. Figure 1 The Circular Flow
Firms sell
Households buy
MARKETS
FOR
GOODS AND SERVICES
Revenue
Spending
Goods
and services
sold
Goods and
services
bought
FIRMS
Produce and sell
goods and services
Hire and use factors
of production
Buy and consume
goods and services
Own and sell factors
of production
HOUSEHOLDS
Households sell
Firms buy
MARKETS
FOR
FACTORS OF PRODUCTION
Factors of
production
Labour, land,
and capital
Wages, rent,
and profit
Income
= Flow of inputs
and outputs
= Flow of euros
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3. Figure 2 The Production Possibilities Frontier
Quantity of
Computers
Produced
3,000 D C
2,200
600 A
700
2,000
Production
possibilities
frontier
1,000
300 B
1,000
Quantity of
Cars Produced
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4. Figure 3 A Shift in the Production Possibilities Frontier
Quantity of
Computers
Produced
4,000
3,000
1,000
2,100
750 E
2,000
700 A
Quantity of
Cars Produced
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5. Table 2 Ten Propositions about Which Most Economists Agree
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