Managerial Economics and Strategy, 2/e

1.2 Economic Models

Economists use economic models to explain how managers and other decision makers make decisions and to interpret the resulting market outcomes. A model is a description of the relationship between two or more variables. Models are used in many fields. For example, astronomers use models to describe and predict the movement of comets and meteors, medical researchers use models to describe and predict the effect of medications on diseases, and meteorologists use models to predict weather.

Business economists construct models dealing with economic variables and use such models to describe and predict how a change in one variable will affect another variable. Such models are useful to managers in predicting the effects of their ...