Economic Models

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Question1

A key feature of some economic models is linearity, or whether the variable of interest changes in constant proportion with another associated variable (meaning they exhibit a linear or constant straight line relationship) or whether the change in the variable is not a constant proportion but varies more or less depending on the level of the associated variable (meaning they have a non-linear or curved line relationship). Which of the following is the most effective way for an economist to support such a relationship?

• Apply knowledge of economic theory to assert the form of the relationship.
• Plot projected future data points of each variable against each other in a graph to visualize the  potential future form the relationship.
• Conduct behavioral experiments and make quantitative observations that indicate the form of the relationship.

Question 2

One important use of algebraic modeling of economic behavior is to determine the direction of the relationship between two economic variables – say the quantity of X that is purchased and the price paid for X. If, as the price of X rises, the quantity of purchases fall, the relationship can be said to be ________.

• negative
• positive
  
• constant