economic model


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economic model

a construct or model incorporating two or more variables that:
  1. describes the relationship that exists between the variables;
  2. depicts the economic outcome of their relationships;
  3. predicts the effects of changes in the variables on the economic outcome.

Economic models are used to summarize the essential characteristics of complex economic phenomena in order to simplify them and render them amenable to analysis. This normally requires the model-builder to make certain simplifying assumptions about human behaviour. For example, in order to analyse demand, economists assume that consumers seek to maximize their satisfaction (utility) and that they will rationally consume more of a product the price of which has fallen, and vice-versa.

There are numerous economic models portrayed in this book; for example, EQUILIBRIUM MARKET PRICE, EQUILIBRIUM MARKET PRICE (CHANGES IN), EQUILIBRIUM LEVEL OF NATIONAL INCOME, MULTIPLIER.

See alsoECONOMETRICS, HYPOTHESIS TESTING, ENDOGENOUS VARIABLE, EXOGENOUS VARIABLE.

References in periodicals archive ?
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urther, Singh raised doubts over the efficacy of the current economic model adopted by the country, and suggested the need for an alternative model.
UNDP Regional Director for Latin America and the Caribbean Heraldo MuEoz said that the major challenge of Chile's experience after the dictatorship of Pinochet was to keep the economic model established by that regime and at the same time provide it with structural adjustments initiated by businessmen through speeding up economic growth and reducing the rate of poverty.
The macro-economic model is novel and follows new economic model for post global economic-crisis era.

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