Models

In economics we use a lot models, but why?, I will later answer this question but first of all I would like to point out what are:

In economics, a model is a theoretical construct that represents economic processes by a set of variables and a set of logical and/or quantitative relationships between them.

We use models in economics to represet in a simple way the complex economics world, makin assumptions.

• Simplification of and abstractation from observed data
• It explains an economic process
• Used to examine an economic issue
• Developing a new economic theory
• Deals with problems or historical data in the economy
  

The principle used is cakked Ceteris-Paribus which is the principle of isolating the variables (not taking other variables in count, just the one we are interested in).

We also use the production possibility curve, that obviously shows the possibility of production.

Then in the graph, the line shows the maximum efficience of resources. When the price changes it is called movement, but if any other thing changes in the curve it is called shift.

In the model we have several elements, but the one we studied included:

· The supply curve

· The demand curve

· The point of equilibrium

· The quantity equilibrium

· The price equilibrium

· The shortage (demand in greater than supply)

· The surplus (supply is more than what is demanded and the price falls)