Economic Theory and Models

C. Economic Theory and Models Economic models are a bollock representation of sparing theory. Economic models follow the principle of Ockhams Razor which state that irrelevant detail should be concentrate away. Like a road map, economic models are simplify generalization of reality that helps explain economic behavior. Models undersurface be expressed in words, graphs or mathematical equations. In this course, well be using mathematical equations to illustrate kindreds between both or more variables. A variable is a measure that can change over time or across observations. Oftentimes, on that point can be many variables that could explain an outcome you observed. For example, if at that place is an increment in auto sales at the topical anesthetic car dealership. The upsurge in sales could be receivable to a host of factors such as lower prices, increase in consumer income, higher prices in a competing dealership, etc… How do we hold out which variable caused the higher sales at the dealership? Economists go forth look at only one variable at a time and try to isolate its effect. This idea is called ceteris paribus (all else equal). In the economic model, we will assume that only 1 variable is changing at a time and hold all otherwise variables as fixed.

By doing this we can clearly analyze the affinity between two variables, by holding all other variables unchanged. When examining the relationship between two variables you should keep the following pitfalls in creative thinker: (1) The Post Hoc Fallacy: This is a common error make in thinking about causation between two variables. If Event A happens before Event B, it is not needs true that A caused B. The post hoc fallacy is the incorrect touch sensation that because event B occurs after event A accordingly A caused B. This is closely related to correlation and causation. Correlation refers to things accident together. Just because two variables move closely together doesnt mean one causes the other. Example: The following... If you want to get a full essay, order it on our website: Orderessay

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