6.1.2 The Role of Models in Economics

• Economic models are simplified representations of economic relationships used to analyze and predict economic outcomes
• What does the Production Possibility Curve (PPC) show?

  Maximum output with resources
• What is the primary purpose of theoretical economic models?

  Test hypotheses
• What do positive economic models describe without value judgments?

  How economy functions
• How do economic models help policymakers?

  Evaluate policy impacts
• Economic models rely on assumptions to make the analysis more manageable.


  True
• Theoretical models use logical reasoning and deductive principles to focus on key economic relationships
• Empirical models heavily rely on real-world data for analysis.

  True
• Economic models help analyze and comprehend economic relationships and behaviors
• The supply and demand model illustrates how prices and quantities are determined by the interaction of buyers and sellers
• Match the feature of economic models with its definition:

  Definition ↔️ Representations of economic relationships

  Simplification ↔️ Focus on essential variables

  Assumptions ↔️ Used for tractability
• Normative economic models prescribe how the economy should function to achieve desired outcomes
• Economic models are used to predict future economic trends and the impact of policies
• Economic models are designed to simplify complex real-world situations to help us understand
• Match the type of economic model with its primary purpose:

  Theoretical Models ↔️ Analyze economic theories

  Empirical Models ↔️ Forecast economic behavior

  Normative Models ↔️ Recommend policy changes
• What is the basis of normative models in economics?

  Value judgments
• What is the main purpose of economic models in simplifying real-world situations?

  To understand
• What do positive economic models describe without value judgments?

  How the economy functions
• Economic models differ in their purposes, reliance on assumptions, and use of data.


  True
• Economic models help analyze and comprehend economic relationships and behaviors
• Normative models recommend how the economy should function to achieve desired outcomes.

  True
• Economic models help policymakers evaluate the potential impacts of economic policies
• What does the Supply and Demand model illustrate?

  Price and quantity determination
• The Production Possibility Curve represents the maximum output that can be produced with available resources
• Economic models may fail to capture important complexities of the real world due to oversimplification.


  True
• Economic models often rely on unrealistic assumptions such as perfect information
• Small changes in initial conditions can lead to vastly different outcomes in economic models.


  True
• Positive models rely on empirical evidence and descriptive reasoning
• What is the primary purpose of economic models?

  Simplify complex real-world situations
• What do economic models predict in the economy?

  Future economic trends
• What is one key use of economic models in understanding economic phenomena?

  Isolate key variables
• Order the purposes of economic models

  1️⃣ Analyze economic phenomena

  2️⃣ Evaluate policy impacts

  3️⃣ Provide education

  4️⃣ Conduct research
• Match the economic model with its description:

  Circular Flow Model ↔️ Depicts the flow of money, goods, and services

  Supply and Demand ↔️ Illustrates price and quantity interaction

  Production Possibility Curve ↔️ Represents maximum output trade-offs
• What is one limitation of economic models in capturing complexity?

  Dynamic relationships between variables