Economic Models Notes

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Economics

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Other

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atguryvoen1

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1.4

Positive/normal analysis:

Positive analysis:

- objective (what is)

- scientific method, assumptions, hypothesis testing, empirical data, economic models

- shows consequences of policy – can’t tell if its good or bad

- primary tool used by economists to conduct this – economic model

Normal analysis: what ought to be – subjective

Economic model purposes:

It explains events in economy and predicts future events

Aids in analyses of economy

It makes complex world easier to understand

They are like math equations of economic theories – tested by empirical data

Tesla Motors:

Model S – highest car rating ever Consumer reports in 2013/ world green car of year – 2013

Model X SUV/minivan – 2014

Tesla produces each model depending on tradeoff since production materials are scarce

Production possibilities frontier (Ppf) – cure of max combos of two products produced with available

resources/current tech

Quantity per model relies on fraction of fixed resources per model:

- hours/day

- max quantities produced

1.5

product specifications:

- 1 hr manufacturing = 15 sedans

- 1 hr ‘’ = 10 SUVs

- Plant run-time = 8 hrs/day

Ppf steps:

1. Determine combos of max output per model

2. Graph combos

POVs:

• Combos of output on/inside frontier attainable with open resources/current tech:

o Combos on frontier = efficient

o Combos inside frontier = inefficient

• Combos beyond frontier = unachievable

o Current resources/tech don’t support these levels of output

• Ppf illustrates tradeoffs/opportunity cost – quantity of other good must be gone in order to

produce more of one good

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1.4 Positive/normal analysis: Positive analysis: - objective (what is) scientific method, assumptions, hypothesis testing, empirical data, economic models shows consequences of policy – can’t tell if its good or bad primary tool used by economists to conduct this – economic model Normal analysis: what ought to be – subjective Economic model purposes: It explains events in economy and predicts future events Aids in analyses of economy It makes complex world easier to understand They are like math equations of economic theories – tested by empirical data Tesla Motors: Model S – highest car rating ever Consumer reports in 2013/ world green car of year – 2013 Model X SUV/minivan – 2014 Tesla produces each model depending on tradeoff since production materials are scarce Production possibilities frontier (Ppf) – cure of max combos of two products produced with available resources/current tech Quantity per model relies on fraction of fixed resources per model: - hours/day max quantities produced 1.5 product specifications: - 1 hr manufacturing = 15 sedans 1 hr ‘’ = 10 SUVs Plant run-time = 8 hrs/day Ppf steps: 1. Determine combos of max output per model 2. Gra ...
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Tags: economic models Economic model purposes productivity Model of market Economy