Abstract
This chapter presents a note on the models in microeconomics. Many economists are not conscious of the use of analytical models unless these models are made out of algebraic functions or geometric curves or some other fancy building material. It is true that the econometricians or the addicts to geometric analysis talk more about models than do other economists. Some of the models in economic theory are designed for a degree of generality that can be attained only by a level of abstraction which is incompatible with realistic details. It is customary to divide the theory of relative prices into three parts or three levels of analysis: (1) the theory of the firm, (2) the theory of the industry, and (3) the theory of the whole system. The purpose of an analytical model is to demonstrate the operation of the factors considered most relevant for the problem under examination. To be most useful for such a purpose, the model should omit everything held to be of small or no relevance for the particular problem. Any part of a model that merely serves to make it look more realistic becomes an unnecessary burden in the use of the model.
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