Answer each of the questions below in short-answer format. Write your responses in
complete sentences. Your answers to each question should include two to three
paragraphs (125-250 words).
Be sure to carefully read each question to ensure that each component is answered with
the appropriate depth and detail. Your answers should be free of spelling and grammar
errors. When using reference material, you must properly cite your sources using in-text
citations. You must also include a reference list. All documentation must be rendered in
APA Citation Style (see announcements for details on APA).
Define and discuss what an economic model is and provide a scenario of how
it would be used in daily life.
An economic model is a simplified description, or representation, of reality. It represents
an approximation for what is predicted to happen to most people in most circumstances
based on a set of data. Sometimes economists will refer to a model as a theory. The
objective of an economic model is to explain choices people make and the consequences
of those choices. (Ayers & Collinge, 2005)
A model can be presented in words, graphs or mathematical equations. Unnecessary
details are excluded from models, keeping only the essential features. For example, a
road map is a model of the surrounding road system and excludes homes, trees and
other unnecessary details that will not aid road directions. Assumptions are also made in
economic models. A common assumption is termed ceteris paribus which is Latin for all
else constant. This assumption allows economists to study one thing at a time.
Writing – Cite Sources – In text source citation
Remember that for references that are not direct quotations, APA requires the author’s
last name and the date of publication as shown here. For more about in-text APA, please
see the Purdue Owl’s free APA style guide:
http://owl.english.purdue.edu/owl/resource/560/02/.
Knowledge –Explanation of Definition
Knowledge – Definition of Term
Economists will hypothesize what they believe to be true and then test it with the available
data to provide empirical evidence for real world problems. If a model is not able to
predict well, it is of no use and economists will have to rethink the problem and build a
new one.
An example of an economic model is the relationship between income level and the
number of years of education, ceteris paribus. In this model, alternative reasons for
different levels of income are removed. For example, the course of study would not be
taken into account. Furthermore, the inclusion of ceteris paribus would not allow other
things to change, for example, the education requirements for job positions. Economists
will now concentrate on the impact years of education have on income level. An
economist may hypothesize that the more education a person has the higher their income
level or the less education a person has the lower their income level. Data on a group of
people’s income level and number of years of education would be collected and analyzed.
If the analysis supports the hypothesis, the model would be considered a good
representation of reality for the average person. However, it must be remembered, a
good model does not mean it is the truth. It simply means the empirical evidence
supported the model.
References:
Ayers, Ronald M. and Collinge, Robert A. (2005). Macroeconomics: Explore and Apply.
Upper Saddle River. New Jersey: Pearson Custom Publishing.
Writing – Reference List
When you reference a source in the text, it not only gives credit to the author of that idea, but
also flags your reader that you will provide them all of the information they need to learn more.
The Reference page in APA style provides a full citation for the work. In this case, the author is
citing a book so the citation takes the following format: Author, A. A. (Year of publication). Title of
work: Capital letter also for subtitle. Location:
Publisher. You can find more information on APA format for books here:
http://owl.english.purdue.edu/owl/resource/560/02/.
Analysis – Application of daily life
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