THINK ECONOMIST
Economists use models to understand the world. Economist Using models to simplify
economic phenomena break out. A model is a simplified theory showing connections key
economic variables. The economist builds the model Helps explain economic variables such
as GDP and inflation Unemployment rate. These models are often symbolic and Expression A
relationship between variables. The model itself has two types of variables, the first being the
endogenous variables. (endogenous variable), that is, the variable explained by a It's a model
and it's an output model. Second, exogenous variables (exogenous variables) variables), i.e.
variables whose values are determined outside the model model input. The purpose of the
model is to show How exogenous variables affect endogenous variables.
A model is shown to make the concept more concrete The economics of supply and demand as
explained in this module rice goods. Supply and demand model for rice raw materials Used to
determine factors that affect price and quantity rice. Assuming the interaction of demand and
supply takes place In a competitive market:
rice demand function
Let Qd be the amount of rice demanded by consumers. Influenced by the price of rice itself (P)
and total income (Y)
Rice supply function
Quantity of rice provided by QS growers is affected by price Input prices (Pi) for rice
production, such as rice (P) and fertilizer prices.
equilibrium
Assuming that rice prices adjust to equilibrium, Rice Demand and Supply, and a Function of
the Rice Equation when equilibrium occurs.
The demand curve is tilted Down (negative slope) relating rice price to quantity Rice demanded
by consumers. the negative slope of this demand curve Indicates that the increase in the price
of the commodity will decrease Quantity requested for the product. supply curve is sloping Top
(positive slope), relating rice price to rice quantity provided by the seller. This positive slope
indicates an increase The price of a commodity increases the supply of that commodity. The
point where the two curves intersect is the equilibrium state of the market. Shows the
equilibrium price and quantity of rice rice.
The demand and supply model above is Used to find out how much an exogenous variable
changes (i.e. total income and input prices) can influence variables Endogenous (rice price).
For example, an increase in total income This inevitably leads to an increase in demand for
rice. Consumers want to buy more rice. This change right shift of the demand curve. The market
is at a new crossroads of supply and demand.
On the other hand, the increase in the input price of rice is like a price increase. Fertilizer, seed
price increase, herbal medicine price increase As a result, production costs increase, leading to
a decrease in Provide rice. Decline in rice supply shifts the curve Offer to raise the price of rice
and raw materials on the upper left rice is implicitly reduced.
PRICE: FLEXIBLE VS. RIGID
The assumptions that play an important role in macroeconomic discussions are: Assumptions
about the speed of wage and price adjustments. Predict Market equilibrium (market liquidation)
is when the market Move to a place where supply and demand are in balance Quickly offset
price fluctuations in goods and services supply and demand. Even though she's a model
However, market equilibrium requires that all wages and prices be flexible In reality, wages
and prices are generally rigid or difficult to achieve Change (sticky). Nevertheless, the
assumption of price and wage flexibility remains Valid because price is not fixed forever, price
is slow Respond to changes in demand and supply.
The market equilibrium assumption explains how the economy changes. Slowly but still
moving towards balance Good for identifying very long-term problems. Real GDP growth from
decade to decade. Instead, the stiffness assumption Prices are more representative of
application to the long-term economy In other words, what is the annual variation in real GDP
and level? unemployment.