ECON 102 Lecture Notes - Lecture 6: Cash Register, Comparative Advantage
Document Summary
We can think of some important examples: a model is any simplified representation of reality that is used to help explain real-life circumstances. But how do we build a simplistic image of an economic situation. One possibility the equivalent of a wind tunnel to an economist is to find or build a true, yet simplified economy. Another choice is to simulate the economy"s workings on a computer. When tax law changes are made, government officials use tax models large computer programs to determine how the made changes will affect various types of individuals. Models are important because they allow economists to concentrate on the effects of only one shift at a time. That is, they allow us to keep all else constant and to research how one adjustment affects the economic outcome as a whole. So the other variables equal hypothesis, meaning all other applicable factors remain unchanged, is an important assumption when constructing economic models.
