Applying Economics Using An Example Of Economic Problem From Your Own Life Essay

1949 WordsOct 7, 20158 Pages
Section A Question One: a) Define economics using an example of economic problem from your own life. Economics is the social science concerned with the production and consumption of goods and services and the analysis of the commercial activities of a society. Economic problem is to match resources to the unlimited wants and needs. For example: if you have $10 to spend, and you want to buy a book which costs $10 each and a pencil that costs $1 each. Now buying a book mean the loss of the benefit that would have been gained from the 10 pencils. b) Outline the steps needed to develop an economic model. Explain how models help in economic decision-making. An Economic model is defined as a theoretical construct that represents economic processes through a set of variables and a set of logical or quantitative relationships between the two. The steps needed to develop an economic model are:- 1. Identify the problem 2. Identify stakeholders in the problem 3. Identify alternate strategies to solve problem 4. Identify resources to implement chosen strategy 5. Implement 6. Evaluate “what was accomplished” 7. Modify or Disseminate problem Models help in decision-making as they focus to gain a better understanding of how things work, to observe patterns, and to predict the results of stimuli. They help to simplify and abstract from observed data, and also serve as a means of selection of data based on a paradigm of econometric study. b) Construct a Production Possibility

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