Question

Question: One criticism often heard about economics is that the models we use are unrealistic: in seeking t...

One criticism often heard about economics is that the models we use are unrealistic: in seeking to keep the scope of our work more manageable by making certain assumptions or ignoring certain details, we may oversimplify the situation.

1. Write one paragraph on whether you agree or disagree with this criticism.

Why do we use models at all, and how should we balance the need for simplicity with the need for accuracy?

2. Write one paragraph explaining what makes a good model.

Find an example of a model (in economics or elsewhere) in the real world and explain if you think your example strikes the right balance between details and simplification of use.

3. Using your model, found in an academic journal article, write one paragraph explaining the model and the degree of usefulness (any strengths or weaknesses).

WRITE IN YOUR OWN WORD PLZ dont copy another answer the was answered before thank you!

Answer 1

1. Yes, definitely the models used in economics are based on assumptions, without which the work seems to be complex. Economists define three basic assumptions in Economics which are mentioned below.

i. Individuals are rational but in the real world who are not, where sometimes they reflect irrational behavior. They are considered rational as this branch of social science (Economics) considers individuals whatsoever will add value to the goods available in the economy.

ii. Individuals are independent based on their sorted information.

iii. Individuals maximize utility whereas the firms tend to maximize profit.

2. General a good economic model contains graphs and use of various math tools in order to maximize the rate of accuracy. Some economists use mere theory instead of a model to explain some of the common elements of the economy, where the accuracy levels or say the level of dependability lacks. So using math tools makes a model more reliable and dependable.

3. Demand curves and Supply curves at a given price or say in a given market is based on various set of practical elements which gives rise to a practical solution. The curves in the model definitely makes use of math tools and various algebraic solutions but the basic assumption of economics remains the same. as mentioned in point 1.

A good economic model can be ''circular flow diagram'' which indicates that basically economy is classified into two groups i.e households and firms, which again linked to two markets,

i. Goods and service market, where a firms sell and the other buys (households). It also known as the Product market.

ii. Labor market, where households sell the labor and the other buys (firms).

So this diagram is simple and easy to understand but in the real world, various elements interfere between the groups like the government, financial markets, supply and demand, etc. which economists in this diagram validates through ''ceteris paribus'' which means that ''other things remain unchanged''. If the goods in the economy are not scarce then there will be not be any kind of assumptions in a given economy. The main question of assumption and criticisms limit answering whether the goods are limited or unlimited?