Why Do Economists Use Models?
Economists are natural thinkers. They would make a lot of assumptions and theories regarding certain factors that they think could have an impact on the economy. When they are testing an idea, they use a model to see if it will work out or not.
Models can be classified as a structure or representation that represents features of a complex system. It can be enhanced with the use of other tools and even computer programs to make gathering of data more precise and efficient. This is what economists use to test their theories and judge those theories based on the results that the model can produce.
In regards to the economy, historical records, graphs, diagrams and other economic data’s are used to determine the success of the proposed idea or theory. Today, computer programs play a lot in the calculation of the different and complex mathematical equations that is needed in creating the perfect economic model.
There are two types of models, the positive model and the normative model. The positive models deals with facts and ‘proven, ideas which can involve money, figures, graphs and other forms of representations that had been used in the past and present. This model represents something that has worked before. The normative model deals with the theories that are ‘supposed to work,, ‘might work,, ‘and ought to work,.
Models are also used to make people understand. Some people rely on facts and other forms of representations to understand things. Models are used to make that happen. When people look at something that they can see, understanding follows. The more accurate and precise the model is, the clearer the picture it projects. With the use of models, economist can not only prove that their theories are correct. It could also make people understand how and why the theory worked.