ch1- ECONOMIC MODELS- intermicro.pptVIP

Microeconomic TheoryBasic Principles and Extensions, 9e Hints Three key points : Thinks ; Theory and Way ; Model and Policy Four kind economist ； explain the simple things in a simple way explain the simple things in a profound way explain the profound things in a profound way explain the profound things in a simple way Chapter 1 ECONOMIC MODELS Contents Theory models Verification of economic Model General Feature of economic model Development of the economic theory of value Modern development Economics：The study of the allocation of scarce resources among alternative end uses Map of the Process of Economic Activities Theoretical Models Economists use models to describe economic activities While most economic models are abstractions from reality, they provide aid in understanding economic behavior Verification of Economic Models There are two general methods used to verify economic models: direct approach－Simon establishes the validity of the model’s assumptions indirect approach－Friedman shows that the model correctly predicts real-world events Verification of Economic Models We can use the profit-maximization model to examine these approaches is the basic assumption valid? do firms really seek to maximize profits? can the model predict the behavior of real-world firms? Features of Economic Models Ceteris Paribus assumption Optimization assumption Distinction between positive and normative analysis Ceteris Paribus Assumption Ceteris Paribus means “other things the same” Economic models attempt to explain simple relationships focus on the effects of only a few forces at a time other variables are assumed to be unchanged during the period of study The problem of conduct controlled experiments in economics Optimization Assumptions Many economic models begin with the assumption that economic actors are rationally pursuing some goal consumers seek to maximize their utility firms seek to maximize profits (or minimize costs) government regulators seek t