Economic models발음듣기
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Economic models
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An economy is made up of millions or even billions of actors organized in incredibly complex ways.발음듣기
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Write down, this is complex real-world and each of the actors, human beings or organizations these are incredibly complex.발음듣기
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I can't predict what you're going to do the next second much less what you're going to do the next day or the next year.발음듣기
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And imagine trying to make insights about what millions or billions of people will do but the field of economics has borrowed an idea from other fields.발음듣기
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So for example, in chemistry chemists have tried to understand at a high level well, how do molecules in a container behave?발음듣기
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Well, you could imagine if you have a container here with trillions upon trillions of molecules this is incredibly complex.발음듣기
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But by making some simplifying assumptions about the type of interactions these particles will have or don't have.발음듣기
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They can come up with models like the ideal gas law which you might be familiar with or not from your chemistry class that relates the pressure to the volume to the number of particles you have to the actual temperature.발음듣기
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And so this right over here where you're taking something that's hairy and complex and making simplifying assumptions to help you understand it.발음듣기
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For example, in biology human beings are incredibly complex organisms and not only are they incredibly complex.발음듣기
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But certain forms of experimentation would also feel fairly unethical to our modern moral ethos and so what do biologists do?발음듣기
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Well, they make simplifying assumptions or they pare down they say, okay, we can't do that study on human beings.발음듣기
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And at least to our modern ethics we're willing to do certain things to mice that we aren't willing to do to human beings.발음듣기
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And so that's why in a biological context you will hear people talk about things like a mouse model where they will test a drug on a mouse or try to understand how something happens in a mouse.발음듣기
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And then say, well, that's a pretty good indication that might be happening to human beings.발음듣기
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In fact, when they do drug trials in medicine they often will do it on mice first and when they have good confidence that it works there.발음듣기
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Even before the advent of computers and computer models economists make simplifying assumptions assumptions like all of the actors in an economy are rational which we already know is not exactly true.발음듣기
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They're simplifying assumptions that all of the people in an economy have the same access to information or that they all even have perfect information which we also know isn't necessarily true in a real economy.발음듣기
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So depending on the model there are going to be these simplifying assumptions that take this large, complex real-world thing and try to break it down into simple equations or lines or charts.발음듣기
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We will see things like the production possibility frontier where it assumes that you're only trading off between two things.발음듣기
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And everything else is equal this notion of ceteris, ceteris paribus which means all things equal.발음듣기
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In a real-world, you're not gonna be able to say hey, let's just pick between these two things and then hold everything else equal.발음듣기
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There's hundreds or thousands or millions of variables are operating but if you wanna make a model maybe we can make these assumptions.발음듣기
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Same thing with famous price equilibria that we're going to study later on where you have supply and demand and then you have these notions of equilibrium prices and quantities.발음듣기
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These also make similar types of assumptions about rational actors and perfect information and these economic models can be very useful.발음듣기
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Now, with that said you should also take them with a grain of salt and you shouldn't just accept them as the absolute description of reality.발음듣기
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In fact, Nobel Prizes have been won in economics by revisiting some simplifying assumptions and coming up with new models.발음듣기
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The other difficulty about economics is it's hard to test it in as absolute a way definitely as something like chemistry or physics.발음듣기
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But even in biology where you're dealing with similarly complex systems a human body and an economy these are both extremely complex systems.발음듣기
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I could take hundreds or thousands of people and give maybe half of them the drug and I could try to control for a bunch of different variables.발음듣기
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But in economics you can't take a thousand different economies that look very similar in what you think matters.발음듣기
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And then see what happens to see whether your model is exactly true or whether your prescription for what makes an economy grow faster actually works.발음듣기
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And so the big takeaway models are valuable across the various sciences including in economics but economics straddles between a social science.발음듣기
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And the sciences like chemistry or physics because you can't run experiments in the same way.발음듣기
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