Economic Models: Simplifying the Complex World

Economics Grades High School 6:50 Video
Print Lesson Plan Watch Video

Lesson Description

This lesson explores the use of economic models as tools to understand complex economic systems by making simplifying assumptions. We will discuss the benefits and limitations of these models, including real-world applications.

Video Resource

Economic models | Basic economics concepts | AP Macroeconomics and Microeconomics | Khan Academy

Khan Academy

Duration: 6:50
Watch on YouTube

Key Concepts

  • Economic Models
  • Simplifying Assumptions
  • Limitations of Models
  • Ceteris Paribus
  • Rationality Assumption

Learning Objectives

  • Define what an economic model is and explain its purpose.
  • Identify the simplifying assumptions used in economic models.
  • Explain the limitations of economic models and the importance of critical evaluation.
  • Provide examples of common economic models.

Educator Instructions

  • Introduction (5 mins)
    Begin by asking students about their understanding of the term 'model.' Discuss how models are used in other fields, such as science and engineering. Introduce the idea that economists use models to understand the economy.
  • Video Viewing (10 mins)
    Play the Khan Academy video 'Economic models | Basic economics concepts' (https://www.youtube.com/watch?v=7n_Hf_UsW7I). Instruct students to take notes on the key points discussed in the video.
  • Discussion (15 mins)
    Facilitate a class discussion about the video. Focus on the following questions: What are economic models? Why do economists use them? What are the limitations of economic models? What is the 'ceteris paribus' assumption? What does rationality mean in economics?
  • Activity: Model Creation (15 mins)
    Divide students into small groups and assign each group a simple economic scenario (e.g., supply and demand for a specific product). Have each group create a simplified model of the scenario, identifying key assumptions and potential limitations. Each group will then present their model to the class.
  • Conclusion (5 mins)
    Summarize the main points of the lesson, emphasizing the importance of understanding both the usefulness and the limitations of economic models. Remind students that models are tools for understanding, not perfect representations of reality.

Interactive Exercises

  • Real-World Model Analysis
    Find a news article that references an economic forecast or model (e.g., GDP growth projection). Have students analyze the assumptions underlying the forecast and discuss potential factors that could cause the forecast to be inaccurate.

Discussion Questions

  • Why is it important for economists to make simplifying assumptions when creating models?
  • What are some potential dangers of relying too heavily on economic models?
  • How can we improve the accuracy and reliability of economic models?

Skills Developed

  • Critical Thinking
  • Analytical Skills
  • Model Building
  • Economic Reasoning

Multiple Choice Questions

Question 1:

What is the primary purpose of economic models?

Correct Answer: To simplify complex economic phenomena for easier understanding.

Question 2:

What does 'ceteris paribus' mean in the context of economic models?

Correct Answer: All things are equal.

Question 3:

What is a key limitation of economic models?

Correct Answer: They are too simple.

Question 4:

The assumption that all actors in an economy are rational means they:

Correct Answer: Act in their own self-interest.

Question 5:

Why is it difficult to test economic models in the real world?

Correct Answer: It's difficult to isolate variables and conduct controlled experiments.

Question 6:

Which of the following is an example of a simplifying assumption often made in economic models?

Correct Answer: Perfect competition exists in all markets.

Question 7:

What can happen when economic models are treated as absolute descriptions of reality?

Correct Answer: Dangerous or ineffective policies.

Question 8:

What is the significance of revisiting simplifying assumptions in economic modeling?

Correct Answer: It can lead to winning Nobel Prizes.

Question 9:

Why are economic models useful despite their limitations?

Correct Answer: They provide a simplified framework for understanding complex issues.

Question 10:

What does the production possibilities frontier model primarily assume?

Correct Answer: Trading off between two goods with everything else held constant.

Fill in the Blank Questions

Question 1:

Economic models use __________ to simplify complex real-world situations.

Correct Answer: assumptions

Question 2:

The idea that all other things are held constant is known as __________.

Correct Answer: ceteris paribus

Question 3:

The assumption of __________ suggests that individuals act in their own best interest.

Correct Answer: rationality

Question 4:

Unlike some sciences, economics often struggles to conduct __________ due to the complexity of economies.

Correct Answer: experiments

Question 5:

Economists use models to make __________ about what might happen in the economy.

Correct Answer: predictions

Question 6:

Price _________ in a market are based on assumptions of rational actors and perfect information.

Correct Answer: equilibria

Question 7:

__________ prizes have been won by revisiting and revising simplifying assumptions in economics.

Correct Answer: Nobel

Question 8:

Economic models are best viewed as __________ for understanding, not absolute descriptions of reality.

Correct Answer: tools

Question 9:

The simplification process in economic modeling helps to break down large, complex problems into simpler __________.

Correct Answer: equations

Question 10:

One common model simplifies economic reality by only considering trade-offs between ____ goods.

Correct Answer: two

Educational Standards

SOC.9-12.E.1:develop and apply economic reasoning and decision-making skills. SOC.9-12.E.1.2:Determine appropriate courses of economic actions using a variety of economic reasoning and decision-making models. SOC.9-12.E.2:evaluate how societies answer the three basic economic questions: what goods and services to produce, how to produce them and for whom are they produced.

Teaching Materials

Download ready-to-use materials for this lesson:

Student Worksheet Classroom Slides Assessment Quiz
Add to Google Classroom

User Actions

Sign in to save this lesson plan to your favorites.

Sign In

Share This Lesson

Related Lesson Plans