Model example and model types

Economic models are useful and often necessary to answer pressing questions. But like all models they have limitations that need to be understood.

It is very important to build models in a way that they are fit for the purpose in question. In economics, we use three general types of models for different purposes:

• Explanatory models
• Simulation models
• Prediction models

In this course, we will cover the first two types of models, that is, explanatory models and simulation models.