MicroE - Introducing economic models Whether you can...

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4/15/11 ‘Whether you can observe a thing or not depends on the theory which you use. It is the theory which you decides what can be observed.’ ---Albert Einstein ‘Economics is the science of thinking in terms of models joined to the art of choosing models which are relevant the contemporary world.’ ---John Maynard Keynes Introducing economic models
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4/15/11 Science is a method – a process of forming hypotheses, making predictions and testing the predictions against the facts. Model Building: The essential detail Irrelevant detail Model Testing: Models can’t be judged by the realism of their assumption, but only by the accuracy of their predictions. Usually, most test illustrate the notion of model building by presenting several models – one of which is invariably the production possibility frontier. Model building and model testing
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4/15/11 The production possibility frontier( PPF ) model PPF : Provides a visual illustration of the contrast between efficiency and inefficiency. It also illustrates opportunity cost and the inevitability of trade-off Examples of economic models
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Robinson Crusoe’s situation Crusoe on his desert island has to divide his time between two activities, fishing and gathering coconuts. Devoting more time to fishing implies less time for coconuts;
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This note was uploaded on 04/14/2011 for the course BUSSINESS 16.391 taught by Professor Micial during the Spring '11 term at Brandon.

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MicroE - Introducing economic models Whether you can...

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