2.1 Economic Model

An economic model is a simplified framework designed to illustrate complex processes. Often, in introductory Microeconomics, these models seem oversimplified because they hold certain variables constant. While one should remain aware of this, these models are still valid. Holding some information constant can help us understand a concept without being overwhelmed by a vast number of influencing factors. Economic models are the building blocks of most modern economic theories. By understanding these models, we can develop a mindset to understand the economic world.

The two essential Economic Models we shall consider here are:

• Circular Flow Model
• Production Possibility Model