Econ501aL2 - Introduction to Economic Theory and the Market...

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Introduction to Economic Theory and the Market Economy We attempt to understand the \real world" economy by building models , using the models to derive hy- potheses, and testing the models by observing data. Models abstract certain features of reality by making simplifying assumptions. Example (Physics): Model describing the time for a ball to hit the ground when dropped from a tower. Assume: no air resistance, constant force of gravity. Example (Economics): The local gasoline market. Assume: all gas stations sell the same homogeneous product, consumers know the prices charged at each station, all stations charge the same price.
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More detailed and realistic models are not necessarily better: for example, a road map. The key is whether the model's assumptions are rea- sonab le . Abovegaso l inema
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This note was uploaded on 07/17/2008 for the course ECON 501.02 taught by Professor Yang during the Spring '08 term at Ohio State.

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Econ501aL2 - Introduction to Economic Theory and the Market...

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