Question

For this discussion forum, begin by reading the following statement and decide whether you agree or disagree with the statement:

“The use of simple models to explain complex economic systems is pointless.”

In a post of several paragraphs, discuss the reasons why you agree or disagree with the above statement. What evidence from the lesson or outside research can you find that supports your stand? How can you connect your argument with the terms and ideas we have studied in this lesson? Include in your post evidence for your stand, especially related to the reasons why economic models are used, assumptions behind economic models, the greater accuracy of more complex models, and the idea that models are often used to focus on one or two factors being studied. Also, consider the example of a model house or model airplane: these might not be “real,” but can we learn anything from these models? How do these models demonstrate the connections and relationships between consumers, producers, and other sectors of the economy?

Answer 1

Complex economic systems like calculating real GdP is big problem and if uses easier solutions then it may result in misappropriation of facts and final numbersand hence affect strategic decision

For example if GDp calculating uses simple straightforward methods then it can inflate and extrapolate numbersbecause it unaccounts inflation indexing and backdating.

Hence simple models just add confusion. For example in India, Gdp calculations uses weighted average model which gives GDp real value at 8 percent growth in 2009 however if complex algorithms like backdating and propogation is used Gdp in real terms stands at 7.2 percent.

An example of airplane models suggest how pricing affects relationships between consumers and producers. When cost is low for airplanetickets no frill no thrill services are offered. Similarlywhen pricing is premium servive expected is of high quality. Also when prices are low it affects the other sectors reduce their manpower administration expenses and vice versa.