Put simply, economic models are simplified versions of reality. The situation in any given economy is very complex because there are several variables having great interdependence among them. Copy the link given below and paste it in new browser window to get more information on Economic Models:- www.transtutors.com/homework-help/economics/economic-models.aspx

1. Economic Models

2. What are economic models?
• Economic models are simply simplified versions of reality
• Use hypothesis testing and mathematical tools to build set of equations to test economic
theories
• Economic models are used to reflect the complex economic processes of the real world
and economy
• They are a stimulation of reality

3. Overview of economic models
• A good economic model will include all relevant variables and a set of equations which
can be used to describe the relation between these variables
• An example of a good economic model is the demand and supply model
• It can be represented graphically as:

4. Types and uses of economic models
• Economic models can be stochastic or non-stochastic, stochastic models study the
relationship between variables over a given period of time
• Non stochastic models can be of either qualitative or qualitative nature, generally
economic models are quantitative in nature
• Economic models have many uses, some of them are: used to come up with economic
policies and are also used as justification for the choice of economic policy, used in
investment and speculation purpose and in some areas of logistics as well

5. Limitations of economic models
• Simplifications in the process of developing economic models leads to unrealistic
features such as perfect information, these features are hardly found in the actual
economy
• Economic models are also subjective in nature, what one econo0mist chooses as a
relevant variable may seem irrelevant to another

6. Helpful links
• Here are some helpful link for understanding the concept and importance of economic
models:
http://www.imf.org/external/pubs/ft/fandd/2011/06/basics.htm
http://pages.hmc.edu/evans/chap1.pdf

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