Chapter one The Market Appreciating Economic Modeling
Chapter One The Market --- Appreciating Economic Modeling
The Purpose of this Chapter To begin to understand the art of building an economic model To begin to understand three basic elements of modeling in economics: Purpose Simplification through assumptions Value judgment
The Purpose of this Chapter To begin to understand the art of building an economic model To begin to understand three basic elements of modeling in economics: –Purpose –Simplification through assumptions –Value judgment
The Purpose of an Economic Model The purpose of an economic model is to help provide precise insights(a 确的洞察力) on a specific economic phenomenon Thus: Different phenomena needs different model: Simplification by assumption is necessary
The Purpose of an Economic Model The purpose of an economic model is to help provide precise insights (精 确的洞察力）on a specific economic phenomenon. Thus: –Different phenomena needs different model; –Simplification by assumption is necessary
An Illustration: Modeling the partment market A Purpose: How are apartment rents determined? Are rents“ desirab|e”? Simplifying assumptions: apartments are close or distant, but otherwise identical distant apartments rents are exogenous(外生变量) and known many potential renters and landlords
An Illustration: Modeling the Apartment Market Purpose: How are apartment rents determined? Are rents “desirable”? Simplifying assumptions: – apartments are close or distant, but otherwise identical –distant apartments rents are exogenous (外生变量） and known –many potential renters and landlords
Two Very Common Modeling Assumptions Rational choice(理性选择):Each person tries to choose the best alternative available to him or her - Equilibrium(均衡): economIc agents interact with each other, resulting in an equilibrium, in which each person reaches an optimal decision given others decisions
Two Very Common Modeling Assumptions –Rational Choice (理性选择）: Each person tries to choose the best alternative available to him or her. –Equilibrium （均衡）: economic agents interact with each other, resulting in an equilibrium, in which each person reaches an optimal decision given others’ decisions