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The Process of Building and Validating an Economic Model
The construction and validation of an economic model begins by establishing assumptions or hypotheses about how people behave. These assumptions form the basis from which the model generates predictions about economic outcomes under different conditions. The crucial final step involves gathering real-world data and comparing it with the model's predictions. This empirical testing helps determine whether the foundational assumptions, particularly the choices about which factors to include and which to omit, were justified.
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Social Science
Empirical Science
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Economy
CORE Econ
Economics
Ch.2 User-centered design process - User Experience Design - Winter 23 @ UI Design in UI @ University of Michigan - Ann Arbor
UI Design in UI @ University of Michigan - Ann Arbor
UI @ University of Michigan - Ann Arbor
User Experience Design @ UI Design in UI @ University of Michigan - Ann Arbor
University of Michigan - Ann Arbor
Introduction to Microeconomics Course
User Experience Design - Winter 23 @ UI Design in UI @ University of Michigan - Ann Arbor
Introduction to Macroeconomics Course
Ch.1 The supply side of the macroeconomy: Unemployment and real wages - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
Ch.2 Technology and incentives - The Economy 2.0 Microeconomics @ CORE Econ
The Economy 2.0 Microeconomics @ CORE Econ
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Economics Models
4 Key Ideas of Economic Models
Applications of Economic Models
Model of Constrained Choice (Decision Making Under Scarcity)
Indifference Curves
Equilibrium in an Economic Model
Feasible Set
Constructing an Economic Model for Price Changes
An economist presents a model of the national housing market that only includes three variables: average household income, national interest rates, and the total number of new houses built per year. A critic argues the model is useless because it ignores dozens of other factors that influence a home-buying decision, such as local school quality, crime rates, and proximity to parks. Which of the following statements provides the most accurate evaluation of the critic's argument?
Choosing the Right Economic Model
The Purpose of Simplification in Economic Models
A social scientist wants to create a simplified representation to understand a specific economic interaction. Arrange the following steps into the logical sequence they would typically follow to construct this representation.
An economic model is considered more effective and useful the more real-world variables and complexities it includes.
An economic model can be represented in various ways. Match each type of model representation to the economic question it is best suited to illustrate or solve.
Because it is impossible to account for every detail of the millions of interactions that shape an economy, an economic model is a deliberately ______ representation of reality, designed to focus on the essential features relevant to a specific question.
An economist is developing a model to understand how a recent college graduate with a new job and a fixed monthly income decides how much of their income to spend on rent versus saving for retirement. The goal is to predict how their spending and saving choices might change if their income increases. Based on the purpose of this model, which of the following correctly identifies an essential feature to include versus an unimportant detail that can be ignored?
Evaluating a Model's Predictive Power
The 'Doing the Best You Can' Principle in Economic Modeling
Partial Equilibrium Analysis
Assessing an Economic Model by Comparing Predictions to Data
Evaluating an Economic Model's Effectiveness
The Process of Building and Validating an Economic Model
Learn After
Role of Prices in Decision Making
Simplification in Economic Models: A Feature, Not a Bug
Forms of Economic Models
An economist is tasked with creating a model to explain a recent, sharp increase in the price of concert tickets for a popular band. They begin by gathering extensive data: the exact seating capacity of every venue on the tour, the average income of residents in each host city, the band's social media follower count, and the daily price of gasoline in those cities. Based on the fundamental process of building an economic model, what is the primary issue with this initial approach?
An economist is building a model to understand the market for a new brand of noise-canceling headphones. Arrange the following steps in the logical order they would follow to construct this economic model.
Modeling a City's Traffic Policy
Deconstructing a Simple Market Scenario
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When constructing an economic model, the primary goal of the step where one studies how the outcome changes when variables are altered is to confirm that the initial assumptions of the model were correct.
Match each component of the economic model-building process with its primary purpose.
An economist is building a model to predict how a significant increase in the price of coffee beans will affect the number of cups of coffee sold by a local café. To isolate the impact of this single price change, which of the following assumptions about behavior is the most essential foundation for the model?
In the final step of building an economic model, an economist studies how the outcome changes when a specific condition is altered. The primary goal of this step is not to test the model's accuracy against real-world data, but to generate new ______ about the economic problem being studied.
Evaluating Competing Economic Models
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An economist is developing a new model to understand how a sudden increase in the price of coffee beans affects consumer purchasing habits at local cafes. Arrange the fundamental steps they would take to construct this model in the correct logical order.
An economist is developing a model to understand the market for rental apartments in a city. The model is built on the idea that landlords will always try to rent their properties for the highest price the market will bear, while potential tenants will seek the lowest possible rent for a suitable apartment. The model incorporates data on the number of available apartments and the number of people looking for a rental. The goal is to see if these interactions lead to a point where the average rent becomes stable. In this model-building process, what is the foundational assumption about behavior?
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An economist is building a model to understand how a new city-wide minimum wage law might affect hiring at local restaurants. The model begins with the assumption that restaurant owners seek to maximize their profits. What is the next logical step in the construction of this model to determine its potential outcomes?
Analyzing a Farmer's Decision Model
Once an economic model successfully identifies an equilibrium outcome, such as a stable market price for a product, the model's primary purpose has been achieved and the process is considered complete.
An economist is building a model to understand the market for used textbooks at the start of a semester. Match each component of their model-building process (the term) with its corresponding description from the scenario (the definition).
An economist develops a model to understand the market for avocados. The model is based on two main ideas: 1) consumers will want to buy more avocados at lower prices, and 2) farmers will want to sell more avocados at higher prices. The model successfully identifies an 'equilibrium price' where the amount consumers want to buy equals the amount farmers want to sell. What is the most valuable next step in using this model for economic inquiry?
Evaluating a Flawed Modeling Process
Developing Economic Skills Through Model Creation
Assessing an Economic Model by Comparing Predictions to Data