Economic model
Human sciences are the study about human beings either individually or correctively. The study is done objectively and scientifically, mainly focusing on the social, biological, and cultural aspects of the human being. There is a range of topics regarding human sciences, including social and cultural anthropology, psychology, geography, and economics. Much has been discovered over time, but human beings are yet to be fully understood. The method used in this study is somewhat sophisticated, yet we could question the extent to which the study of human beings can go. There could be a bias both on the researcher and the object of the research. Researchers are likely to be faced with linguistic barriers and cultural biasness mak9ng it hard to access information from communities. The sociologist could face an ethical dilemma while conducting research. A psychologist may face observational biasness, and the research object may change their behavior because they are being observed. Moreover, economists may use a complicated formula to analyze the data collected; however, what is the extent to which a particular model can be used to do economic forecasting? Which brings me to my knowledge question, how accurate are economic models?
Economic model act as a simplified description of reality, which is designed to produce hypothesis which can be tested. Economic models are subjective in design because it lacks an objective measure of economic outcomes. Economic models are classified into empirical and theoretical models. Theoretical models are designed to derive accurate inferences of particular economic behavior. It is done under the assumption that there is the maximization of specific objectives that are well outlined in the model. This model provides qualitative answers to specific economics questions. For instance, what is the effect of asymmetry information?
Contrary to theoretical models, empirical models are used to verify the prediction of the theoretical models. It also converts these theoretical models into a numerical representation. For instance, an agent consumption behavior model would suggest the relationship between income and expenditure. In contrast, the empirical model will show the differential change in spending caused by an increase in revenue.
In general, every economic model should contain a set of mathematical equations describing a theory of economic behavior. Economists wanbt3d to include enough models to provide useful clues to every economic phenomenon and how it works. For example, the standard model used to explain demand and supply is a valuable model for economic. The primary aim of the model is to explain the relationship between quantities and prices of goods and services in a competitive market. In this model, supply and demand are determined as a function of change in price and other variables. Other variables may include a change in income and economic policies. The guiding factor for the market price is the assumption that supply equals demand at a given price. The demand will always increase when the price decreases, and the supply decrease when the price decreases. This movement is set towards the market-clearing point, the equilibrium. However, this is without government intervention. Changes in the market are explained using this model.
However, economic models are subje4ctive approximations of reality and, therefore, prone to failure. A good case is the failures of the economic models to predict the financial crisis of 2008. The cause of the crisis is not clear with the debate revolving around demand, wealth, and high financial risk. There is research uncovering the lessons of the crisis that changed economics forever. The most suitable model in any circumstance should be determined by its ability to continually detect levels of financial risk that may require extraordinary measures.
In conclusion, there is no economic model that correctly describes economic reality. However, econoi9mist have been very keen on the construction process, testing, and the revising process, and it has helped them tighten their views of economic behaviors.