Describe the
Explanation of Solution
Macroeconomic models are also toy versions of the real world that contain the key moving parts to give us an idea about how the real world really works.
In order to generate real insights, a model of ice cream production only needs a few key features in common with the real economy. For example, the more the workers, more ice cream can be produced, and if there are more machines, then more ice cream can be produced. If one gets a new idea for developing machines, then even more ice cream can be made with less number of workers.
In this case, the model can easily capture positive and diminishing returns to a factor, constant returns to scale, and increasing returns to ideas, but it is extremely simple. It helps one to forget unnecessary details about real life such as human emotions, the need for health care and nutrition, the distribution of income, natural resources, and so forth. Economics has progressed as a science when it has left things out.
Want to see more full solutions like this?
- What steps are involved in developing and testing an economic theory or model? What are the criteria for a useful theory or model?arrow_forwardDefine economics in terms of wealtharrow_forwardExplain the three types of macroeconomic policies that can be used to intervene in economies? what goals are pursued on our behalf?arrow_forward
- Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSONEngineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
- Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage LearningManagerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage LearningManagerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education