POLS4011 Lecture Notes - Lecture 4: Pareto Efficiency, Perfect Competition, Homo Economicus
14 Jun 2020
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Document Summary
What makes a model useful is that it captures an aspect of reality, specifically the most relevant aspect of reality in a given context. These contexts can include markets, social settings, countries, time periods. Economists build models to capture salient aspects of social interactions. There interactions can take place in markets which are local, regional, national or interactional. They can be organised physically, virtually or long-distance. Buyers and sellers can be individuals, firms, collective entities and goods and services can be almost anything. Economists use models to shed light on the functioning of institutions such as schools, unions or governments. Models are useful bc they tell us what the likely outcomes depend on. The answer depends on whether individual employers behave competitively or not. These answers depend on features of the real world context- models highlight these features and show what they depend on.
