Economic Model

vs. Economic
Theory
Sam D. Fuego
Social Sciences Department
School of Liberal Arts
Ateneo de Zamboanga University

Economic Models
Economic models provide a way to render

some aspects of an economy less complex

than it really is.
Models are not themselves the truth, but they
are engines for discovering the truth.
They help economists identify the causes and
effects, explain economic phenomena, and
make useful economic prediction.

Cont.
Model is a formal statement of an economic

theory.
The most common way of expressing these
are in words, graphs, and in equations.
Equation:

Qdx = f (Px)

Economic theory
Is not a fact or law which has been proven.
Is an attempt to establish predictive

relationships from observed facts.

If a theory says that one event always follows
another, and if experience shows that no
exceptions to this ever occur, then, it be
regarded as a law.

Microeconomics vs.
Macroeconomics
Microeconomics deals with the economic

behavior of individual units such as

consumers, firms, and resource owners.
Macroeconomics deals with the behavior of

aggregates such as Gross National Product

(GNP) and the level of Unemployment.

Methodology: The Scientific

Approach
Economics deals with what is? positive

economics.
This is in contrast with normative economics,
which deals with what should be?
To be able to understand and explain
economic events and economic theories, the
student of economics must learn how to use
the basic tools of economics.

Basic tools of economics

First, he has to learn how to apply

logic in order

to enable him to reason out properly and to allow

conclusions.
Second, use of Mathematics will enable him to
conceptualize and quantify economic principles.
Third, use of Statistics will enable him to describe
quantitatively human behaviors and to serve as
empirical evidence in the testing of hypothesis.
These tools equip student of economics to approach

the subject in a scientific approach.

Economic Logic
Inductive
Particular to general
Deductive
General to particular

Deductions and
Empirical testing
These are hypothesis or
theories presented for
empirical validation. They are
temporary conclusions made
based on ones observations
and are still subject to the
presentation of evidence.
Deductions have to be tested
as to their validity and
correctness. The presentation
of the empirical evidence will
be the basis of rejecting or
accepting a hypothesis.

Assumptions Observation
He should be able to describe the
specific uses of the study and
peripheral conditions which affect
the economic behaviors which are
being studied.

An economist should be able

to recognize conditions,
behaviors and events in the
environment.

Scientific approach

End