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Predicting Market Shifts with a Physical Model
A physical, hydraulic model is set up to represent a simple two-good economy. The model uses interconnected water cisterns and levers to show how prices are determined. For each good, the water level in one cistern represents the quantity supplied, while the water level in an interconnected 'money' cistern represents the total income consumers are willing to spend. A system of levers, representing consumer preferences, controls the flow of water (money) between the cisterns.
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Social Science
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Economy
CORE Econ
The Economy 1.0 @ 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
User Experience Design - Winter 23 @ 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
Ch.2 Technology and incentives - The Economy 2.0 Microeconomics @ CORE Econ
The Economy 2.0 Microeconomics @ CORE Econ
Introduction to Microeconomics Course
Analysis in Bloom's Taxonomy
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Equilibrium in Irving Fisher's Physical Model
Analyzing a Physical Economic Model
The transition to a coal-based economy during the Industrial Revolution was widely understood at the time to be a trade-off, where immediate, massive economic growth was accepted in exchange for known, long-term environmental damage.
Irving Fisher's physical model of an economy used water in cisterns to represent the quantity of goods and money, and a system of levers to represent consumer valuations. The flow of water between cisterns simulated market transactions, with the final water levels indicating equilibrium prices. Given this structure, what would be the most direct way to represent a sudden increase in the supply of a single commodity within this physical model?
Irving Fisher's 1891 hydraulic model used a physical apparatus to represent market mechanics. Match each component of Fisher's physical model to the economic concept it was designed to represent.
Purpose of Fisher's Hydraulic Model
Predicting Market Shifts with a Physical Model
The primary purpose of Irving Fisher's hydraulic economic model was to provide precise, quantitative forecasts for government and corporate policy-making.
A key limitation of using a physical hydraulic apparatus to illustrate market mechanics is its inability to easily represent certain complex economic phenomena. Which of the following economic concepts would be the MOST difficult to accurately simulate using a system of interconnected water tanks and levers meant to represent supply, demand, and prices?