Updated Jun 26, 2020 Models are a very important tool when it comes to understanding economic principles. Yet they are often subject to criticism, mostly because many of them are said to be simplistic and far away from reality. Because of that the importance of economic models is often underestimated. To be fair, the critics may have a point. The models are indeed simplistic and not always close to reality. But that is exactly what makes them great. To keep things short, they have two very important functions.
Instead a good model will omit certain details and build on certain assumptions. This will make it much easier for us to examine it and actually learn something.
The second function is very much connected to the first one. By omitting certain details while keeping others, the model automatically guides our attention in a certain way. Depending on what we are trying to learn, the model can put the focus on different topics. At this point it is important to note that including different details will dramatically change the quality and purpose of every model.
Now that has implications for our car example. If for instance we are trying to figure out how an engine works, we need to include all the relevant rods, wheels and pins into the model. The bumper design however is not relevant and can be omitted. Naturally these relevant details are entirely different if we are trying to create a new design for our car and so on.
Looking at economic models the right way will come in handy as we are learning more about economics. Sometimes even looking at what is not included can help us understand what a topic is all about.
Basic Principles