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What do Economists Do? Economic Models • Economists construct models to investigate the way that economic systems work. • Economics is concerned with the ways individuals, businesses, & nations choose their limited resources. • Economic Models- formulate theories & gather data from the real world. What Models Show • To show a visual representation of consumer, business, or other economic behavior. • Econ models all relate to the way individuals, as consumers, & business people react to changes in the world around them. Cont…… • Most common econ model is a line graph. • The graph explains how consumers react to • • changes in the prices of goods & services. Econ models do not record every detail & relationship that exists about a problem to be studied. Model shows only the basic factors needed to analyze the problem at hand. Creating a Model • Begin with ideas about the way things work, then collect facts & discards those that are nor relevant. • Find example of teen unemployment. • Hypothesis- assumption involving 2 or more variables that must be tested for validity. Testing a Model • Testing a Model or Hypothesis to see if it represents reality. • Read Figure 1.5 • If model does not turn out, you must make another model to explain the changes. Applying Models to Real Life • Economists might think that cutting taxes might stimulate the econ. Why? • Why might this backfire because of people’s fears? Schools of Economic Thought • • • • See Figure 1.6 What do the Democrats think? What do the Republicans think? What does ‘Big Government’ mean? The End!