Physical Models in Economics

An economist first writes a detailed paragraph describing how a change in the price of a key raw material affects the quantity of a product a company is willing to sell. Next, she creates a line graph illustrating this relationship visually. Finally, she develops an equation that precisely calculates the quantity supplied for any given price of the raw material. What does this process demonstrate about the nature of economic models?

Match each form of economic model representation to its primary characteristic or function.

Choosing the Right Model for Policy Decisions

Modeling Consumer Behavior

For an economic model to be considered a valid and useful tool for analysis, it must be represented using mathematical equations.

Relationship Between Model Forms

An economist is studying the relationship between the price of gasoline and the quantity people are willing to buy. Arrange the following steps in the logical order an economist would typically follow to develop a formal model of this relationship, progressing from a general observation to a precise representation.

When an economist moves from a detailed verbal description of a market relationship to a visual representation that shows the connection between two variables, they are most commonly creating a ______. This visual tool can then be precisely defined using mathematical equations.

An economist develops a verbal model to describe the market for a luxury good. The model states: 'At lower prices, a small increase in price causes a significant number of consumers to stop buying the good. However, at very high prices, the remaining consumers are less sensitive, and the same price increase causes only a small drop in the number of buyers.' Which of the following graphical representations best illustrates this economic model, assuming Price is on the vertical axis and Quantity is on the horizontal axis?

Communicating Economic Findings

Mathematical Representation in Economic Models