Describe the
Explanation of Solution
Macroeconomic models are also toy versions of the real world that contain the key moving parts to give us an idea about how the real world really works.
In order to generate real insights, a model of ice cream production only needs a few key features in common with the real economy. For example, the more the workers, more ice cream can be produced, and if there are more machines, then more ice cream can be produced. If one gets a new idea for developing machines, then even more ice cream can be made with less number of workers.
In this case, the model can easily capture positive and diminishing returns to a factor, constant returns to scale, and increasing returns to ideas, but it is extremely simple. It helps one to forget unnecessary details about real life such as human emotions, the need for health care and nutrition, the distribution of income, natural resources, and so forth. Economics has progressed as a science when it has left things out.
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