LS2 Models In Economics

Question 1

How do economists explain how the economy works?

Answer 1

Economists develop models to explain the economy. These models can be used to predict the impact of economic change such as the impact on employment if the minimum wage is increased

Question 2

How easy is it for economists to conduct experiments? Why?

Answer 2

It is difficult for economists to conduct experiments. Economists therefore rely on data and assumption to make models that can explain and predict economic phenomena. It is difficult to conduct experiments because the economy fluctuates making it harder to evaluate.

Question 3

How do economists overcome the issues with experiments?

Answer 3

There are lots of factors that can impact economic activity. To overcome this problem, economists can assume “Ceteris Paribus” which is to assume other variables remain constant.

Question 4

Why is Ceteris Paribus important?

Answer 4

This is important because if you are to change one variable in a model, it is likely to impact many others, diverting focus from the impacts of the changed variable