Lecture Slides 3 - Overview Last class 12 Principles of...

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Overview Last class : 12 Principles of Economics This class: Economics Models 11/30/16 1 Econ 130_ Fall 2016 _ C Dhakal
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11/30/16 2 Economists use theory and models to approaches problems and express conclusions J ohn Maynard Keynes “ Economic is not just a subject area but also a way of thinking”…… economics teaches you how to think, not what to think”. Theory : is a simple representation of how two or more variables interact with each other. A th e ory is a representation of the relationships among facts. The purpose of theory is to take a complex, real-world issue and simplify it down to its essence. Models: A synonym for theory; Model is a simplified representation of reality that is use to better understand real-life situation. Model is more particular statement (thought experiments ) especially those that take the form of graphs or equations. Economics needs theory and models because facts do not speak for themselves. Econ 130_ Fall 2016 _ C Dhakal
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How do we create a simplified representative of an economic situation? Most of the models in economics are based on strong assumptions. “ other things equal”, which means that all other relevant factors remain unchanged.
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