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The Role of Economics ModelsThree Basic ModelsThe Production Possibilities FrontierComparative Advantage and the Gains from TradeThe Circular Flow DiagramUsing Economic Models - Normative versus Positive EconomicsEcon 101: Principles of MicroeconomicsCh. 2: Economic Models: Trade-offs and TradeFall 2010Herriges (ISU) Chapter 2: Economic Models Fall 2010 1 / 29Outline1The Role of Economics Models2Three Basic ModelsThe Production Possibilities FrontierComparative Advantage and the Gains from TradeThe Circular Flow Diagram3Using Economic Models - Normative versus Positive EconomicsHerriges (ISU) Chapter 2: Economic Models Fall 2010 2 / 29Economic Models - Trade-offs and TradeIn this chapter, we focus on the role of models in understanding howthe economy works.We consider three basic models1The Production Possibilities Frontier2Comparative Advantage3The Circular-Flow DiagramFinally, we consider the distinction between using the economicmodels to make normative versus positive economic statements.Herriges (ISU) Chapter 2: Economic Models Fall 2010 3 / 29Economic Models - Trade-offs and TradeIn this chapter, we focus on the role of models in understanding howthe economy works.We consider three basic models1The Production Possibilities Frontier2Comparative Advantage3The Circular-Flow DiagramFinally, we consider the distinction between using the economicmodels to make normative versus positive economic statements.Herriges (ISU) Chapter 2: Economic Models Fall 2010 3 / 29Economic Models - Trade-offs and TradeIn this chapter, we focus on the role of models in understanding howthe economy works.We consider three basic models1The Production Possibilities Frontier2Comparative Advantage3The Circular-Flow DiagramFinally, we consider the distinction between using the economicmodels to make normative versus positive economic statements.Herriges (ISU) Chapter 2: Economic Models Fall 2010 3 / 29Economic Models - Trade-offs and TradeIn this chapter, we focus on the role of models in understanding howthe economy works.We consider three basic models1The Production Possibilities Frontier2Comparative Advantage3The Circular-Flow DiagramFinally, we consider the distinction between using the economicmodels to make normative versus positive economic statements.Herriges (ISU) Chapter 2: Economic Models Fall 2010 3 / 29Economic Models - Trade-offs and TradeIn this chapter, we focus on the role of models in understanding howthe economy works.We consider three basic models1The Production Possibilities Frontier2Comparative Advantage3The Circular-Flow DiagramFinally, we consider the distinction between using the economicmodels to make normative versus positive economic statements.Herriges (ISU) Chapter 2: Economic Models Fall 2010 3 / 29Economic Models - Trade-offs and TradeIn this chapter, we focus on the role of models in understanding howthe economy works.We consider three basic models1The Production Possibilities Frontier2Comparative Advantage3The Circular-Flow DiagramFinally, we consider the distinction between using the economicmodels to make normative versus positive economic statements.Herriges (ISU) Chapter 2: Economic Models Fall 2010 3 / 29The Role of Economics ModelsWhat is a Model ?A model is a simplified representation of a real situation that is usedto better understand real-life situations.Models are used extensively in a variety of disciplines.1Wind tunnels are used to understand the aerodynamics of a car orairplane2Engineers and architects build models of bridges and buildings to bettervisualize them and test their physical characteristics.3Aerospace Engineers at Iowa State University can generate a atornado-like vortex (4.0 ft diameter) for understanding how structuresrespond to adverse weather conditions.We use models in everyday life in the form of maps.They provide a simplified representation of the world designed to helpfind locations of interest.Consider the problem of trying to find our way from Ames to theField Museum in Chicago.Herriges (ISU) Chapter 2: Economic Models Fall 2010 4 / 29The Role of Economics ModelsWhat is a Model ?A model is a simplified representation of a real situation that is usedto better understand real-life situations.Models are used extensively in a variety of disciplines.1Wind tunnels are used to understand the aerodynamics of a car orairplane2Engineers and architects build models of bridges and buildings to bettervisualize them and test their physical characteristics.3Aerospace Engineers at Iowa State University can generate a atornado-like vortex (4.0 ft diameter) for understanding how structuresrespond to adverse weather conditions.We use models in everyday life in the form of maps.They provide a simplified representation of the world designed to helpfind locations of interest.Consider the problem of trying to find our way from Ames to theField Museum in Chicago.Herriges (ISU) Chapter 2: Economic Models Fall 2010 4 / 29The Role of Economics ModelsWhat is a Model ?A model is a simplified representation of a real situation that is usedto better understand real-life situations.Models are used extensively in a variety of disciplines.1Wind tunnels are used to understand the aerodynamics of a car orairplane2Engineers and architects build models of bridges and buildings to bettervisualize them and test their physical characteristics.3Aerospace Engineers at Iowa State University can generate a atornado-like vortex (4.0 ft diameter) for understanding how structuresrespond to adverse weather conditions.We use models in everyday life in the form of maps.They provide a simplified representation of the world designed to helpfind locations of interest.Consider the problem of trying to find our way from Ames to theField Museum in Chicago.Herriges (ISU) Chapter 2: Economic Models Fall 2010 4 / 29The Role of Economics ModelsWhat is a Model ?A model is a simplified representation of a real situation that is usedto better understand real-life situations.Models are used extensively in a variety of disciplines.1Wind tunnels are used to understand the aerodynamics of a car orairplane2Engineers and architects build models of bridges and buildings to bettervisualize them and test their physical characteristics.3Aerospace Engineers at Iowa State University can generate a atornado-like vortex (4.0 ft diameter) for understanding how structuresrespond to adverse weather conditions.We use models in everyday life in the form of maps.They provide a simplified representation of the world
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