Question

Discuss economic models, trade-offs, and trade. How and why do models play a role in economics?

*300 word response.

Answer 1

A model is a simplified representation of a real
situation that is used to better understand real-life situations.
The production possibility frontier (PPF)
illustrates the trade-offs facing an economy that produces only two goods. It shows the maximum quantity of one good that can be produced for any given production of the other.

Trade off in economics - In economics, the term trade-off is often expressed as an opportunity cost, which is the most preferred possible alternative. A trade-off involves a sacrifice that must be made to get a certain product or experience. A person gives up the opportunity to buy 'good B,' because they want to buy 'good A' instead. For a person going to a baseball game, their economic trade-off is the money and time spent at the ballpark, as compared to the alternative of watching the game at home and saving their money, plus the time spent driving to the ball game.

Example - Going out on Friday night could involve several economic trade-offs. Let's say you really want to go to the bar with your friends. You will likely spend $40 that evening and get home at 1 AM. The first trade-off might be the four hours you are giving up that you could use to perhaps finish your term paper. Another potential trade-off might be the $40 that you need to fill up your car with gas. Finally, you know that you might wake up with a headache and most likely will miss your Saturday morning workout that you look forward to.

Trade in economics - Trade is a basic economic concept involving the buying and selling of goods and services, with compensation paid by a buyer to a seller, or the exchange of goods or services between parties. Trade can take place within an economy between producers and consumers. International trade allows countries to expand markets for both goods and services that otherwise may not have been available to it. It is the reason why an American consumer can pick between a Japanese, German, or American car. As a result of international trade, the market contains greater competition and therefore, more competitive prices, which brings a cheaper product home to the consumer.

Role of economics model in economics -

Trade is a basic economic concept involving the buying and selling of goods and services, with compensation paid by a buyer to a seller, or the exchange of goods or services between parties. Trade can take place within an economy between producers and consumers. International trade allows countries to expand markets for both goods and services that otherwise may not have been available to it. It is the reason why an American consumer can pick between a Japanese, German, or American car. As a result of international trade, the market contains greater competition and therefore, more competitive prices, which brings a cheaper product home to the consumer.