{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

CHAPTER 2 - CHAPTER 2 ECONOMIC MODELS Economists base their...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER 2. ECONOMIC MODELS Economists base their studies in models . In general, a model is a simplified representation of a real situation. The usefulness of a model is that it leaves out all the details that are not relevant to the subject, but rather it concentrates in the most important aspects of it. For instance, an architect that presents a design of a building uses a model of it to illustrate how it would look like. For the model to work it only needs to show a small-scale representation of the building, but it does not have to have small-scale representations of the other buildings next to and in front of the building in question. These would be extra details that can be ignored. A similar situation occurs in economics. An economic phenomenon may depend on many factors, but only a few of them are really worth of attention. Other less important variables may be left out and still the model would have good explanatory power. In fact, by not including small details, models become easier to understand. In economics models are usually put in equations because equations give more clarity about what the author has to say (words can be misinterpreted). Graphs are another way to present models. Graphs have the advantage that they are accessible to a wider public. In this chapter the text presents three important models: The production possibility frontier, the model of comparative advantage, and the circular flow model. PRODUCTION POSIBILITIES FRONTIER A production possibilities frontier shows the combinations of outputs X and Y that an economy is able to produce given the available factors of production (land, labor, and capital) and a given production technology.
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern