The Types of Models in Economics

Page 1 of 5

The Types of Models in Economics

By | October 2010
Page 1 of 5
Types of Models in Economics
From the definition of a model, it has been said that models in economics have the wide range of forms including graphs, diagrams, and mathematical models. Economists use these models in different purposes; it depends on many factors such as what type of raw data they have, how they can represent the data, and what they want from the model they use. In this section it will be more explanation about what is the main role of these different models and also some important examples in economics. Flow Chart

Flow chart is a diagram that shows the connections between the different stages of a process or parts of a system. Economists use a flow chart to explain how the economy is organized and how participants in the economy interact with one another. If people follow the right connections in the flow chart diagram It will be easier for them to understand the relationship between participants in the economy. One of the important flow chart using in economics is called the circular-flow diagram, presented in Figure 1. Circular-flow diagram is a visual model of the economy that shows how dollars flow through market among households and firms.

Graph
Graph is a planned drawing, consisting of a line or lines, showing how two or more sets of numbers are related to each other. In general the different types of graphs can be separated by using the number of variables represented in the graph, i.e. graphs of a single variable such as pie graphs, bar graphs, or time-series graphs; graphs of two variables (these variables are represented by the x- and y-coordinate) such as scatter diagrams; and graphs of more than two variables (these graphs are represented by more than 2 coordinates). In economics many kinds of graphs are used: some graphs show how variables change over time; other graphs show the relationship between different variables. So it is important to know what is the difference between these graphs and how to choose the right one to...