An economic model is a simplified framework that is designed to illustrate complex processes. Oftentimes in introductory Microeconomics, these models seem oversimplified because they hold certain variables constant. While one should remain aware of this, these models are still useful. 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 basic Economic Models we shall consider here are:
- Circular Flow Model
- Production Possibility Model
“2.2 Production Possibility Frontier” in Principles of Microeconomics by Dr. Emma Hutchinson, University of Victoria is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.