ECONS 101 Chapter 2: EconS101 Chapter02
Document Summary
A model is any simpli ed version of reality used to better understand real situations. To create a simpli ed version: find or create a real but simpli ed economy. For example, economists have studied the role of money through the system of exchange in world war ii prison camps. Cigarettes became a universal payment even among prisoners who didn"t smoke: simulate the workings of an economy on a computer. For example, tax model mathematical computer programs are used when changes in tax law are proposed to assess how the proposed changes would affect different groups. Models simplicity allow economists to focus on effects of only one change at a time: important assumption is other things equal. Assumption that all other relevant factors remain unchanged. Most effective form of modeling is construction of though experiments : simpli ed hypothetical versions of real situations.
