Models
This simply refers to an expression of abstract objects, events and phenomenon in a real life situation. It is a mirror image of what should be. It conveys meaning in a simplified representation of an actual phenomenon. A model entails three distinctive breaths which includes.
- Structural analysis
- For-casting
- Policy evaluation
Economic models: this entails describing, predicting and prescribing the various economic activities in a village/region/country.
Mathematical models: this deals with the use of mathematical logic, principles and theories to describe, prescribes and for-cast behavior of related variables. A model is said to be mathematical if it consists of a set of equations designed to describe the structure of the model.
Econometric models: this entails measuring economic outcomes. It covers a tripartite arrangement where economic theories, mathematical logic and statistical logic. Principles are used for analysis, predictions as well as evaluation of economic activities.
A general algebraic model can be expressed as f(y,x,d)=0
Where
F= column vector of g function and can take the form of linear and non-linear.
Y= a row vector of g endogenous variable.
X= a row vector of k exogenous or lagged endogenous.
d= a row vector of m parameter.
Microeconomic models: this studies behavior of individuals and group of individuals especially in term of choices and actions in relation to production, distribution, allocation and exchange of commodities.
Macroeconomic models: these are derivatives of macroeconomic theories and applications. It relies on macroeconomic variables instead of looking at an individual or group of individuals.
Basic mathematical ingredients
There are basically three mathematical ingredients which includes, - Variables: this refers to any item especially economic indicators whose magnitude can change overtime.
- Constant: a constant refers to any item whose magnitude does not change overtime. It is combined with fixed numbers.
- Parametric constant: parametric constant are usually expressed in alphabets or greek symbols like, alpha, beta, gama, landa, e.t.c.
Equations and identities
There are basically three types of equations which are - Dysfunctional equations: it is a set of identity between two alternative expressions that have the same meaning.
- Behavioral equations: this specifies the manner in which one variable will be have in response to another.
- Equilibrium condition equations: this talks about an equation that pre-requisite for the attainment of equilibrium.