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List and discuss two basic models used in both Micro and Macro economics.

Oct 30, 2023

List and discuss two basic models used in both Micro and Macro economics.

answer: Two basic models used in both Micro and Macro economics are the supply and demand model and the circular flow model.

Key Concept

The supply and demand model is a fundamental concept in economics that explains how prices and quantities of goods and services are determined in a market economy.

Explanation

In this model, the supply curve represents the quantity of a good or service that producers are willing to sell at different prices, while the demand curve represents the quantity that consumers are willing to buy at different prices. The intersection of the supply and demand curves determines the equilibrium price and quantity in the market.

Key Concept

The circular flow model is a simplified representation of the flow of goods, services, and money in an economy.

Explanation

It shows how households and firms interact in the market. In this model, households supply factors of production (such as labor) to firms, and in return, firms pay wages and salaries to households. Firms produce goods and services, which are then sold to households. The circular flow of income and expenditure is completed when households spend their income on goods and services produced by firms.

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