c. a simplified representation of some aspect of the economy
Work Step by Step
The economy is highly complex and depends on many different factors that can be difficult to observe. Therefore, economists will use models that rely on assumptions that present a simpler view of the economy that we can understand. For example, to study the effects of international trade, which can involve dozens of countries at the same time, economists can consider a model in which the world consists only of two countries that each produce one good. By considering a world with only two countries and two goods, we can understand how both countries are impacted by trade and then use this to understand the role of international trade in our complex world.