Explain what is meant by the term “an economic model” and outline a model of price and output determination in a free market. Examine the effect of a change in real disposable income on equilibrium price and output. An economic model or theory is a simplified explanation and analysis of economic behaviour. It allows us to predict, and therefore intervene, if we do not like the outcome of a possible chain of events. Theories and models are mainly derived from past responses to similar stimuli or from statistical surveys, and this information may not always be accurate as it assumes ceteris paribus, or all other things remaining e....

Number Of Words: 1261

Number Of Pages: 5

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