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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 economic model 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 of a good or service 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, which in turn produce goods and services. Firms then sell these goods and services to households, who use their income to purchase them. This circular flow of income and expenditure forms the basis of economic activity in an economy.

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