Google
Tuesday 
September 21, 2021 

AmosWEB means Economics with a Touch of Whimsy!

AmosWEBWEB*pediaGLOSS*aramaECON*worldCLASS*portalQUIZ*tasticPED GuideXtra CrediteTutorA*PLS
OPEN MARKET: A market, not unlike that stock market, that trades the U.S. Treasury securities that comprises the federal debt. U.S. Treasury securities are low risk and extremely secure financial instruments that are held by all sorts of investors, especially commercial banks. The Federal Reserve System is also a major holder of U.S. Treasury securities and participant in the open market. In fact, the Federal Reserve System used buying and selling of U.S. Treasury securities through the open market as a means of controlling the money, through what is appropriately termed open market operations.

Visit the GLOSS*arama


MODEL:

An abstract representation of the real world that is usually based on scientific theories, principles, and hypotheses. A model is used to analyze economic phenomena by focusing on a small number of essential aspects of the real world. It is then manipulated to derive conclusions and implications that can be applied to the real world.
A model is a handy tool that can be used to investigate phenomena, test hypotheses, and analyze alternative events in a simplified, abstract manner. Abstraction is an important feature of any model. A model captures essential features of the real world, but ignores (hopefully) irrelevant details. For economic models, abstraction generally comes in the form of words, graphs, or equations.

An Abstract Model

Market Model
Market Model
Consider, for example, the market. The market model diagram--with price on the vertical axis, quantity on the horizontal axis, a downward-sloping demand curve, and an upward-sloping supply curve--is fundamental to the study of economics. This diagram, however, is not a market itself, but an abstract graphical representation of a market. It is a model.

Suppose this particular diagram is constructed to represent the Shady Valley market hot fudge sundae market. By design, by assumption, the demand curve (D) represents the market demand for hot fudge sundaes by the residents of Shady Valley. The supply curve (S) is then assumed to represent the supply of hot fudge sundaes in the Shady Valley area.

With this configuration in place, this diagram can be used to ascertain the market equilibrium. It can be subjected to comparative statics to see how the equilibrium price and equilibrium quantity are affected by changes in any of the demand or supply determinants. This analysis then can be used to suggest what might happen to the actual price, production, and consumption of hot fudge sundaes in Shady Valley.

However, this diagram is only a model. The real market for hot fudge sundaes does not include any lines or curves. It includes regular people who saunter down to their local ice cream establishment for a freshly prepared hot fudge sundae. It includes the wide range of real world establishments--restaurants, fast-food franchises, street vendors--that make hot fudge sundaes. It includes people buying and consuming. It includes firms producing and selling.

Real World Complexities

Because a model abstracts from the real world, it ignores some real world details and complexities. For example, the good analyzed in the Shady Valley hot fudge sundae market model is hot fudge sundaes. But what exactly is the good traded in the real Shady Valley hot fudge sundae market? That is, what constitutes a hot fudge sundae? Is it a "standard" hot fudge sundae with two scoops of ice cream, three dollops of hot fudge sauce, whipped cream, almond sprinkles, and a cherry on top? What if peanuts are added or the whipped cream is left off? What if frozen yogurt is used rather than ice cream? Does substituting hot caramel sauce for hot fudge sauce make this a different good and a different market? So many possibilities!

When economists create abstract models of the real world, these alternatives need to be considered. Decisions must be made before constructing a model. Perhaps the relevant market is not hot fudge sundaes, but ice cream treats or frozen desserts. How a model is constructed and which real world details are included or ignored is usually determined by what questions economists need answered. If economists are ultimately interested in ice cream sales, then ice cream treats, regardless of topping, is the appropriate model. However, if economists are more concerned with the chocolate industry, then all types of frozen desserts with hot fudge topping are relevant.

Part Science, Part Art

Constructing economic models of the real world is not an exact science. It depends on the questions asked as well as the skills, interests, and even personal biases of the investigators. This suggests that models are occasionally (not always, but occasionally) constructed to achieve desired results. Suppose, for example, that Professor Grumpinkston is against the minimum wage. Give him five minutes and he will have a model that illustrates why the minimum wage is bad. Alternatively, if he is for the minimum wage, he can come up with another model to show why it is so great. The models might differ ever so slightly based on which real world details he chooses to use and which he chooses to ignore.

<= MOBILITYMONETARY AGGREGATES =>


Recommended Citation:

MODEL, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2021. [Accessed: September 21, 2021].


Check Out These Related Terms...

     | comparative statics | marginal analysis | economic analysis | graphical analysis |


Or For A Little Background...

     | abstraction | scientific method | phenomenon | economic science | world view | political views | theory | data | cause and effect | fallacy of false cause |


And For Further Study...

     | fallacies | normative economics | seven economic rules | economic thinking | four estates | free enterprise | pure market economy | pure command economy | circular flow | market | short-run production analysis | consumer demand theory | utility analysis | business cycles |


Search Again?

Back to the WEB*pedia


APLS

BROWN PRAGMATOX
[What's This?]

Today, you are likely to spend a great deal of time visiting every yard sale in a 30-mile radius looking to buy either a T-shirt commemorating the 2000 Olympics or a genuine fake plastic Tiffany lamp. Be on the lookout for empty parking spaces that appear to be near the entrance to a store.
Your Complete Scope

This isn't me! What am I?

The standard "debt" notation I.O.U. does not mean "I owe you," but actually stands for "I owe unto..."
"Man is born to live, not to prepare for life. "

-- Boris Pasternak, writer

NEDC
National Economic Development Council
A PEDestrian's Guide
Xtra Credit
Tell us what you think about AmosWEB. Like what you see? Have suggestions for improvements? Let us know. Click the User Feedback link.

User Feedback



| AmosWEB | WEB*pedia | GLOSS*arama | ECON*world | CLASS*portal | QUIZ*tastic | PED Guide | Xtra Credit | eTutor | A*PLS |
| About Us | Terms of Use | Privacy Statement |

Thanks for visiting AmosWEB
Copyright ©2000-2021 AmosWEB*LLC
Send comments or questions to: WebMaster