Economic Models and Economic System

[Name of the Author]

Economic Models and Economic System

Economics

Economics is the study of making choices by people and institution in the availability of the scarce resources. The underlying assumption in the study is that resources are scarce and we have to make choices in the presence of limited resources. Economics deals with five main questions such as what, how, when, where and who. The first question is about what goods and services are required by the market to produce and what quantity of goods and services is required by the consumer, how decides about the how the goods and services are produced, such as by man or machine, when deals with when the goods and services are produced such as increased or decreased production of goods, where is about the place where goods and services will be produces, whether imported from other market or produced in the native land. Lastly who decides for whom the goods and services will be produces that is either rich or poor.

Economics models

All the Economic models are based on certain assumption that resources are scared, and people are bound to make choices in the presence of limited resources. The approach for making the choice has huge importance and it depends on the availability of resources. The resources are classified into four main categories that Land, Labor, Capital and entrepreneurship. The approach depends about how much the customer is eliciting the value from using the specific form of good or service. Therefore Value is which is measure of satisfaction, happiness, and benefit which one feels by using limited resource. Another important thing that is necessary in understanding the economic model is Cost. Cost refers to what an individual give up in order acquiring particular resource. Cost can be in term of material or non material form. With cost comes, opportunity cost which is based on sacrificing one product over another or what's the value of what you can't buy because you bought something else.

The economic models are the relationship of forces expressed in more elaborated way. They help in understanding the working of different economic phenomena. Models are explained with certain assumptions that might not be literally true but functionally possible and open more way for economist study different forces.

1.The production possibilities curve is an important model of how much an economy can produce given resources and technology.

Production Possibilities Curve

Production Possibilities Curve (PPC) is graph that illustrates the production trend of two products or services by with the availability of scarce resources. There are certain assumptions which are necessary to make before understanding the model. These assumptions are as follows.

Resources are fixed

The first assumption of the model is the availability of resources which are fix number of resources, such as land labor, capital and entrepreneurship. All resources are fully employed.

Another important assumption is based on the fact that all the factors of production are employed at maximum utility. In other words economy is working at full ...