One criticism often heard about economics is that the models we use are unrealis

Question

One criticism often heard about economics is that the models we use are unrealistic: in seeking to keep the scope of our work more manageable by making certain assumptions or ignoring certain details, we may oversimplify the situation.

Write one paragraph on whether you agree or disagree with this criticism.

Why do we use models at all, and how should we balance the need for simplicity with the need for accuracy?

Write one paragraph explaining what makes a good model.

Find an example of a model (in economics or elsewhere) in the real world and explain if you think your example strikes the right balance between details and simplification of use.

Using your model, found in an academic journal article, write one paragraph explaining the model and the degree of usefulness (any strengths or weaknesses).

Explanation / Answer

Economics is basically a study of inter-relationships between different variables that make up working of an economy. Given the vast number and complexity of variables and their correlation, making a model without assumptions or taking certain criteria to be given or constant is almost impossible.Each variable has various causal factors.If we have to determine relationship between just two variables, assuming others to be constant is admissable.But caution must be taken when determining the amount of effect the particular independent variable has on teh dependent variable.

Economists use models in order to give a name or a specific flow(or causal raltion) to the relationships they discover, in order to make use of the relationships in policy planning and developmental decision making. Without a model, explaining the reasons for both positive and normative economics would be highly difficult. Models are what we can say as examples to the relationsip we are defining.

A good model should always be specific to time and region. Given the vast differences between economic activities and other macro-economic indicators, generalisation of economic models is foolish. For example,relying on model given by a Swedish person in 1900 cannot be implemented in India in 2018. Assumptions are required, but the model should make sure to intimate(mostly some number in percentage) that the relationship may also be affected due to the assumptions.This is enhance discussiond and hence pave a path for others to speculate on the relationship. Yes, a balance between accuracy and simplicity is needed but based on the application ,we can decide which has to be given more weightage or importance.

The Keynes model of Psychological consumption function is a good example of a balance between accuracy and simplicity. The relationship that income determines the consumption os as clear as posssible and a accurate description.Although therories after keynes suggested various variations to the consumption function, Keynes did a good job of identifying the fundamental causal relationship. It may be current income or future income or transitory income, but the essence that INCOME determines consumption has been well captured by his theory.

And with succeeding theories we can understand the strenghth and weakness and variations of the theory, but nobody can go go agianst the theory that Incomce does determine consumption.

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