Why do economists use models, and to what extent is it important that these models are realistic?

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Why do economists use models, and to what extent is it important that these models are realistic?

One of the main reasons as to why we construct models is because we wish to know why something is as it is. We use these models all the time to decide how to act, not only in economics but also in real life. For example because we know that fire burns we tend not to put our hands in a flame. In economics however these models are used obviously for economic understanding and to act upon the findings.

In economics there are two types of models a positive model and a normative model. A positive model deals with facts and figures, which can be proven whereas when using normative models you tend to find that they deal with the way things ought to be. The main type of model for solving problems and looking at the economy are the positive models.

The basic use of an economic model is to help economists to understand and predict a large number of economic problems such as unemployment and inflation. Economic models are usually based on real life situations, although they are often simplified in order for the economists to obtain a greater understanding of the problem or situation. Models help economists because they can explain a very complex problem in a very straightforward way. Models are used in everyday life, not just in economics. For example road maps of Britain are simplified models because they only show the main roads and give a rough shape of a city, whereas in A-Z's of a particular city, the maps show every road even the really small insignificant ones. Looking at models like this show us how models can be used to help the understanding of a situation because of someone was wishing to travel from Sheffield to London, they probably wouldn't use A-Z's of every area they went through, but instead they would use a road map, which only depicted the main roads. In economics terms this means that if an economist was generally looking at a problem he would use a model to get the basic idea of what the situation is and to highlight the main points of this problem.
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Models are very valuable resources to economists because not only do they portray a problem they also manipulate the recipients mind into a certain way of thinking. This mode of thought helps the economist not only in that particular example, but also in every problem they are faced with. This is because economists don't have to learn every single model ever made in order to become a good scholar, but it is helpful to have the skill of interpreting the majority of models that they come across. A single model helps to do this because if you can ...

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