ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -An economic model is a simplified version of reality that allows us to observe, understand, and make predictions about economic behavior. The purpose of a model is to take a complex, real-world situation and pare it down to the essentials.

Detailed explanation-2: -Its basic purpose is to explain and analyze prices and quantities traded in a competitive market. The model’s equations determine the level of supply and demand as a function of price and other variables (for example, income).

Detailed explanation-3: -Models are used for two main purposes: simulating (e.g. how would the world change relative to some counterfactual if we assume a change in this or that variable) and forecasting (e.g. what the world might look like in 2030).

Detailed explanation-4: -No economic model can be a perfect description of reality. But the very process of constructing, testing, and revising models forces economists and policymakers to tighten their views about how an economy works.

Detailed explanation-5: -Economic models can help a business understand the revenue generated by each of its customers, and estimate how it relates to and can be impacted by investments in marketing, product development, or administration.