Explain What Is Meant By The T :: essays research papers

Explain what is meant by the verge an economic model and outline a model of equipment casualty and issue determination in a free food market. Examine the effect of a change in real disposable income on equilibrium charge and output.An economic model or theory is a simplified chronicle and analysis of economic deportment. It allows us to predict, and therefore intervene, if we do not same(p) the outcome of a possible chain of events.Theories and models argon mainly derived from early(prenominal) responses to exchangeable stimuli or from statistical surveys, and this information may not ever so be accurate as it assumes ceteris paribus, or all other things rest equal. For example, figures may show that the number of great deal smoking doubled when the price of cigarettes halved in the 1960s. This does not mean to say that following a similar price reduction today, the response would be the same, as advertising has increase the awareness of the dangers of smoking. Such a d ifference in behaviour patterns backside be explained when we consider that economics is a social science, concerned with people, who support a free will and cannot be made subject to laws. This to a fault explains why many models are generalised, dealing with trends in economic behaviour rather than the choice of the individual, as this varies and is difficult to surmise and predict.A market is a place where buyers and sellers communicate for the purpose of the exchange of a good. In free market, the price of a good can fluctuate, determined by supply and lead. When economists discuss claim, they mean effective demand, or how much people will want, and can afford to buy at any tending(p) price of a product. This means that demand is dependent on price. The interpret above is a demand curve that illustrates that as price rises, demand falls. This enables movement along the curve, which we term an expansion or contraction of demand, depending on the direction of this movement. Like most economic models, it is simplified and assumes ceteris paribus that price and demand have an inversely proportional relationship. This theory does not account for goods which are nesscessities or that have few close substitutes, for whom demand may tarry constant with price changes.Similarly, there is a supply curve that shows the relationship between price and supply. The economic theory here is that the higher price a good commands, the higher your profit margin will be (assuming costs of production remain constant).