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    Economic Models.s04

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    fionna
    This document discusses different types of theoretical economic models used by economists. It describes mathematical models as the most formal and abstract type of model that use systems of simultaneous equations. Comparative statics is used to compare economic outcomes before and after changes in parameters by studying shifts in supply and demand. Partial equilibrium analysis looks at changes in individual markets, while general equilibrium analysis examines changes in the entire economic system. Simplifying assumptions are made to better understand economic issues.

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    Economic Models.s04

    Uploaded by

    fionna
    133 views14 pages
    This document discusses different types of theoretical economic models used by economists. It describes mathematical models as the most formal and abstract type of model that use systems of simultaneous equations. Comparative statics is used to compare economic outcomes before and after changes in parameters by studying shifts in supply and demand. Partial equilibrium analysis looks at changes in individual markets, while general equilibrium analysis examines changes in the entire economic system. Simplifying assumptions are made to better understand economic issues.

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    This document discusses different types of theoretical economic models used by economists. It describes mathematical models as the most formal and abstract type of model that use systems of simultaneous equations. Comparative statics is used to compare economic outcomes before and after changes in parameters by studying shifts in supply and demand. Partial equilibrium analysis looks at changes in individual markets, while general equilibrium analysis examines changes in the entire economic system. Simplifying assumptions are made to better understand economic issues.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    133 views14 pages

    Economic Models.s04

    Uploaded by

    fionna
    This document discusses different types of theoretical economic models used by economists. It describes mathematical models as the most formal and abstract type of model that use systems of simultaneous equations. Comparative statics is used to compare economic outcomes before and after changes in parameters by studying shifts in supply and demand. Partial equilibrium analysis looks at changes in individual markets, while general equilibrium analysis examines changes in the entire economic system. Simplifying assumptions are made to better understand economic issues.

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    © All Rights Reserved
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    Download as ppt, pdf, or txt
    of 14

    Theoretical Models

    Economists use models to describe economic

    activities
    While most economic models are

    abstractions from reality, they provide aid in


    understanding economic behavior

    Economic model
    In economics, a model is

    a theoretical construct representing


    economic processes by a set of variables and
    a set of logical and/or quantitative
    relationships between them.
    Are composed of a series of statement
    assumptions and statement of implications or
    deduction.

    Simplifying assumptions are used to gain a

    better understanding about economic issues


    with regards to the world and human behavior.
    Economists build simplified descriptions to
    enhance their understanding of how things
    work.
    An important feature of an economic model is
    that it is necessarily subjective in design
    because there are no objective measures of
    economic outcomes.

    Types of models
    Mathematical model

    The most formal and abstract of the economic


    models.
    These are systems of simultaneous equations
    with an equal or greater number of economic
    variables.
    The manipulation and use of these models
    require a good knowledge of algebra or
    calculus.

    Mathematical equations
    D = a - bP
    S = c + dP
    where D = quantity demanded, S = quantity

    supplied, P = price per unit


    and a,b,c, and d are constants.

    Comparative statics
    is the comparison of two different economic

    outcomes, before and after a change in some


    underlying exogenous parameter.
    Comparative statics is commonly used to
    study changes in supply and demand when
    analyzing a single market, and to study
    changes in monetary or fiscal policy when
    analyzing the whole economy.

    Supply and demand in different


    forms
    Verbally

    Supply is a schedule of prices and quantities that a


    supplier or suppliers are willing to offer for sale at
    each price per period of time. These suppliers
    would be encourage to sell more at high prices and
    would sell less at lower prices. This is because
    higher prices, other things being constant, mean
    higher profits and lower prices mean lower profits.
    Thus, prices and quantity offered for sale directly
    related, that is, the higher the price, the more
    supply, the lower the price the less supply.

    We can say that microeconomics is

    concerned with the three types of models


    1.models to explain the resource allocation or
    choice decisions of individual, household,
    producers, and firms
    Models to explain how prices and quantities
    exchanged are determined in various types of
    market structures
    Models to examine the market economy as an
    interrelated system(general equilibrium model)

    Comparative statics
    Focuses on the shift in equilibrium positions

    (statics) for individual decision unit, market or


    an economic system.

    Equilibrium
    Refers to state in which there is a balance of

    internal forces and no tendency for the


    situation to change unless outside forces
    intervene.
    A system in such equilibrium may also be
    termed static

    Dynamic analysis
    Focuses on the pattern and rate of change for

    some variable between point in time.


    Dynamic analysis allow us to see the path of
    variable how the variable change with time.

    Partial Equilibrium Analysis


    Compares equilibrium changes for one

    decision unit or one market independent or


    related changes in the economic system.
    considers the effects of a change on one or a
    few markets only.
    Ceteris paribus- all other things being equal

    General Equilibrium Analysis


    Recognizes the independence of all decision

    units and all markets in the economic system.


    It examines changes within the context of the
    entire system.
    All variable are allowed to adjust in response
    to the initial change.

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