Model and changes from reality.
Explanation of Solution
Economy is an actual world, which includes the individuals and set of many laws and regulations that determines the relations between the individuals. The testing of any economic theory in the actual world is very difficult because of the wide diversity in the economy. This is handled through the introduction of the economic models.
The economic model is a theoretical construct with a set of variables and set of relationships between the variables. This theoretical construct represents the abstract of the economy. Since the model is only an abstract, it would not show all the characteristics and details of the real economy whereas it highlights the features that are important to the economy.
The best example for the model is the globe. It shows the main highlights about the continents and the design and scalar size of the seas and oceans but is not as perfect representation of the original. Another example includes the roadmaps and model of human organs.
Economic model: Economic model is an abstract of the reality, which explains the economy through a set of theoretical construct of set of variables and set of relations between the variables.
Want to see more full solutions like this?
Chapter 21 Solutions
MICROECONOMICS
- Differentiate economics as a social science and applied science?arrow_forwardThe illusion of pattern shapes our everyday lives. How does this illusion emerge (refer to law of small numbers & impossibility of causal explanations) and how does it affect decision-making?arrow_forwardWhat good is economic theory if it cannot predict the behavior of a specific individual?arrow_forward
- True/false/explain. Economic models must mirror reality or they are of no value. When economists make normative statements, they are more likely to be acting as scientists.arrow_forwardAn economic model is a complex version of reality used to analyse real world economic situation True or Falsearrow_forwardWhat is an Economistarrow_forward
- Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
- Economics Today and Tomorrow, Student EditionEconomicsISBN:9780078747663Author:McGraw-HillPublisher:Glencoe/McGraw-Hill School Pub Co