economic model
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ECONOMIC MODEL
Nilesh P.Shouche
MBA I
KRS College of Management Studies, Nasik.
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Economic Model
An economic model is a mathematical or logical statement of economic theory. It is a method of analysis which presents an over-simplication of the real world. Economic Models can set up with diagrams, words, equation form, etc.
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Purpose of Economic Models
Predict & explain behavior Help to generate new ideas
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Types of Economic Models
Physical Models Analog Models Symbolic or Mathematical models
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Types of Economic Models
Physical Models: - These are sculptures, photographs or visual representation of certain aspects of a system.
Analog Models: - These models are one set of properties represent the other set which the system under study possesses.
Symbolic Models: - In these models the inter-relationships are expressed through mathematical symbols.
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Physical Models
Few examples of Physical models are: -
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DB-9 pin Connector:
DB-9 pin Connector:
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Analog Models
Few examples of Analog Models are: -
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Expenses
Food22%
Clothing20%
Education10%
Travelling8%
Household 30%
Taxes5%
Misc.5%
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Types Of Symbolic Models
(i) Quantitative Models: - These are based on statistical data.
e.g.
Binomial, Poisson and Normal Distribution.
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Types Of Symbolic Models
(ii) Allocation Models: - These are used for finding a solution for optimizing a given objective.
e.g.
Linear Programming, Break-Even Analysis, etc.
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Types Of Symbolic Models
(iii) Scheduling Models: - These are used for determining an optimum sequence for performing certain operations.
e.g. PERT, CPM, etc.(iv) Waiting Line Models: - These represents the
random arrival of customers at any point of service.
e.g. Big Bazar, Reliance Fresh, Subhiksha, etc.
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Types Of Symbolic Models
(V) Simulation Models: - These are of two types one is Monte Carlo Technique and another is Systems Simulations.
Monte Carlo Technique uses Random numbers, Whereas Systems Simulations uses Historical numbers.
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Types Of Symbolic Models
(vi) Inventory Models: - These models help in optimizing inventory levels.
e.g. E.O.Q., ABC Analysis.
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Evaluation of Economic Models
Each model is based on a set of assumptions and as a result, a model is an abstraction from reality.
Milton Friedman and many others argue that a model should be judge on its predictive accuracy rather than on how believable its assumptions are.
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Advantages of Models
Models transform verbal expressions into scientific expressions.
Standardized terminology. Models are logical. Models lend themselves to proper analysis
and interpretation. The assumptions of a model are stated
clearly.
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