MGT Notes

Reference, ‘Principles of Economics,’ by N. Gregory Mankiw, 3e, Pg 22

The purpose of models in any scientific discipline is to enable the study of various theories and topics in a highly simplified manner. For example, models in physics allow one to test the laws of physics by focusing on just a few aspects of the forces involved. This in no way represents the full complexity of reality but is useful nevertheless to simplify the understanding of theories. Similarly, economists use diagrams and equations to model different aspects of an economy.

A couple of models we will look at in the next few posts are the Circular Flow Diagram & the Production Possibilities Frontier.