The Types of Models in Economics

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Types of Models in Economics From the definition of a model, it has been said that models in economics have the wide range of forms including graphs, diagrams, and mathematical models. Economists use these models in different purposes; it depends on many factors such as what type of raw data they have, how they can represent the data, and what they want from the model they use. In this section it will be more explanation about what is the main role of these different models and also some important examples in economics. Flow Chart Flow chart is a diagram that shows the connections between the different stages of a process or parts of a system. Economists use a flow chart to explain how the economy is organized and how participants in the…show more content…
The actual mathematical expression of equation (1) can range from a simple algebraic relationship to large complicated sets of differential equations. Economists use a mathematical model as a ‘theory’ to determine the particular problem. Many proven mathematical models are used in economics as the formulas to help economists calculate and analyze the numerical issues easier, e.g. the rule of 70. Econometricians use the scientific way of thinking to develop a new econometric model or a theory to explain the economic system. When a model is built up, it is a safe way to writing down all the factors that is related to the studied economic issue, otherwise it might have been forgotten some influenced factors that can make the trouble inside the model. More detail about how economists develop a model will be discussed later. Why do economists need a ‘Model’? To answer this question, it is better to understand the way economists use to analyze, solve and foresee a particular economic issue. As it is mentioned before that economists use the scientific approach to deal with economic problems, the scientific approach starts from scientific observation (it can be the environment or other fields of interest), after that they will build up a hypothesis, then they
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