Economic modeling is an extremely important component of many processes in this scientific field, which allows one to analyze, predict and influence certain processes or phenomena that occur during the economic movement. In this article, this topic will be considered as detailed as possible.
Definition
Mathematical modeling of socio-economic processes is a repetition (in other words, a reconstruction) of certain objects or phenomena that are directly related to the economy, on a reduced scale (that is, under the control of the person who is building this model, the conditions created and maintained artificially). Most often, a similar method of reproducing, analyzing, and solving any emerging economic problems is used precisely with the help of mathematical techniques, formulas, dependencies, etc.
The general functions of economic modeling are to analyze the economic system as a whole and its individual processes and phenomena in particular, forecasting any events, possible thanks to calculations that are mathematically derived, as well as the preparation and maintenance of various plans for managing and influencing the economy, its components and derivative tasks. More details about these functions will be written under the corresponding article headings.
As a rule, the end result, the product of economic modeling (that is, the model itself) has fundamental support, consisting of real information derived from statistical and empirical studies. Based on the obtained model, it is possible to predict with high accuracy those or other processes or phenomena, as well as evaluate any factors related to economic theory.
Economic theory
An important feature of any model is the fact that with its help the basic properties of the object or phenomenon studied in the process of modeling can be identified, which means that specific patterns inherent in the given object or phenomenon can be determined. For example, if a product has declined in its price, it is highly probable that an economist can determine that representatives of any of the categories of citizens corresponding to consumers of this product will purchase it more often in the future. This, in turn, is a clear reflection of the essence of the law of demand.
The real person in economic theory is replaced by his “improved”, more rational copy - an economic entity that is guided exclusively by reason, excluding any feeling, and makes every decision based on conclusions from carefully verified reasonings and comparisons, the elements of which are benefits, losses, utility and other concepts involved in this process. Such entities get to their goals with the least cost or with the greatest results, if they must act within certain restrictions.
The manufacturer’s goal in this system is to achieve the highest possible profit in his case or some other indicators necessary for success. The consumer must find the manufacturer or the product that will provide maximum utility and best cover consumer needs.
Complex processes from the field of economics are most often simplified by applying a method such as partial analysis, the essence of which is to take the majority of factors affecting the object of study as constant and constant, while those factors whose influence on the object of study must be determined can change. The result, derived from a partial analysis, becomes the first step in the implementation of a more complex, general analysis, in which absolutely all factors are taken into account during the study. Economic analysis in modeling methods also plays a very important role.
Model Requirements
In the mathematical modeling of economic processes, it is extremely important that the model results correspond to a certain list of requirements, which is as follows:
- The content.
- Realism of all results, as well as specially made errors.
- Opportunity for further forecasting.
- The ability to obtain all the necessary information.
- The ability to verify the resulting model.
And also some others.
Scientists-economists did not agree on one general conclusion as to which criteria from this list are the most important. Someone relies on the possibility of forecasting, someone relies on the permissible realistic value of errors (for example, to find an explanation for already completed economic events). The majority, however, admits that economic and mathematical modeling is designed to solve specific applied problems, and if the model performs them, it does not matter whether it meets other criteria that are less important than the main ones.
Stages of creating a model
Any theoretical model goes through similar stages, and economic modeling models are no exception. These steps in chronological order are as follows:
- Selection of the necessary variables for further work and successful compilation of the model of variables.
- Determination of permissible errors, the use of which facilitates the structure of the model and research activities based on it.
- Development of one, and in some cases several explaining interrelated and mutually exclusive processes and factors of hypotheses.
- Conclusion based on studies of specific findings.
Classes of economic models
The fundamentals of economic modeling can be conditionally divided into two large classes, each of which is necessary for detailed consideration. These classes are ideal and material modeling.
Material modeling (otherwise it is called physical or subject) is that simulation in which an object existing in reality is compared with its copy in a reduced or enlarged version. Such economic modeling allows the transfer of properties from the prototype of the model to its object according to the principle of similarity (as a rule, all this happens in laboratory conditions). As an example, you can cite any layouts, physical models, etc.
Ideal modeling, however, does not take as a basis the physical analogy of the prototype model with the model itself, but the analogy drawn at the mental level in the ideal form, that is, without any errors. Most often, it is used in the present studies in terms of economic phenomena, since field experiments always limit the scientists conducting them in possibilities, while ideal models can be constructed with much lower costs.
Types of Perfect Modeling
Ideal modeling, in turn, is also divided into several subtypes: intuitive, symbolic and imitative. Since the latter is a synthesis of the first two, we will consider them in more detail:
- Intuitive modeling is the basis for modeling social and economic processes, which is based on the thoughts of the one who builds it. In other words, this is a figurative model that is applicable where the cognitive knowledge base is not extensive enough or is at the stage of its initial development.
As an example of what can be studied through intuitive modeling, one can cite a science such as physics - despite the colossal theoretical basis of this science and the concretization of knowledge and theories about it and its derivatives, there remain many areas in which a person cannot look into without the use of one’s own imagination, which, coupled with objective knowledge of reality, can push the researcher to any conclusion. If we talk about economics, then a very long period of time, intuitive modeling was, in principle, the one and only available option for conducting analytical work with related calculations within the framework of scientists studying processes directly related to the economy and the laws and rules of its formation, movement and development. Any person making a decision in the field of economics, in one way or another, is based on a model built earlier by himself or another, more competent person, in relation to the specific situation that he needs to solve.
However, in the field of serious economic operations, the use of this method, which relies on a person’s personal experience, as a rule leads to errors, because the subject of the economy may not be objective enough or at least not as objective as the subject who takes certain decisions based on the landmark modeling. Also, intuitive models fundamentally prevented economics as a science from developing unhindered during its historical growth, for the simple reason that different researchers and economists can interpret the same model of this type in completely different ways, and therefore the conclusions they made on it basis, will vary among themselves.
- Sign modeling is the basis of socio-economic modeling, which involves the use of models based on the exact sciences, in particular mathematics.
It was a mathematical approach that allowed the economy to create a base of specific methods and methods for constructing models as close as possible to the current state of affairs, and also taught economists how to use it to draw the right conclusions from these methods. However, the prevalence of iconic models in the work of professionals, including in the modeling of socio-economic systems, does not in the least diminish the benefit and significance of their intuitive “colleagues”, who are no less important in their specific areas.
Groups of elements in models
Any model of the economic process or phenomenon that is studied on the part of people engaged in this on a professional basis, as well as any enthusiasts and amateurs interested in this science and solving its applied problems, contains elements that, in turn, are divided into two groups according to degree the fame of its parameters.
- If at the time of building the economic model all its parameters and any mathematical calculations and dependencies are already known, then these parameters are called exogenous variables. A group of these elements is formed after thorough observation of the object of study and study by scientists, as a result of which they put forward a number of certain hypotheses about its properties and other indicators that can be considered in the model of this object.
- If at the time of building the economic model all its parameters and any mathematical calculations and dependencies are not yet known, then these parameters are called endogenous variables. This group is already based on the analytical work carried out on a specific model with the aim of resolving issues related to it.
If exogenous variables are changed in any way, influencing them in one way or another, then it will be possible to detect certain properties that are inherent in endogenous variables, which, in fact, are a direct object of economic research.
Types of Economic Models
There are two types of economic activity modeling products discussed in this article. The kind to which a particular model belongs is determined by the nature of the object of study, in which modeling was used as a way to solve the problem. In accordance with the methods of economic modeling, these two types look like this:
- Optimization. Models based on this type are responsible for the actual description of the motives in the behavior of certain economic agents (this term refers to the subject of economics and relations within the framework of this scientific and social sector, which is directly involved in the production processes and further distribution of material goods), which reach the set they face tasks within the framework of certain conditions confronting them and constraining factors.
- Equilibrium. Models of this type present to the specialist who built them the final result of a set of mutual actions and a list of relations between business entities, after which conditions are developed in which all their economic actions will be compatible and will not interfere with each other.
It should be clarified that an economic entity is an economic entity engaged in the production or sale of any material values. This can be either a citizen who independently carries out work activities in the field of individual entrepreneurship, or an organization or enterprise, various funds, exchanges, associations, banks, etc.
There is also an important term that sounds like an economic equilibrium. This term refers to the state of the economic environment in which not a single subject of economic relations is interested in changing anything in it or in modeling economic development. This should not be regarded as if all participants in economic relations are completely satisfied with their economic results, simply in this state none of them is able to increase their material wealth by influencing the volume of acquisitions or sales of certain goods or the structure of their distribution under certain way the prevailing system of prices for them. The point of this equilibrium is at the intersection of two curves, one of which is responsible for the demand indicator, and the other for supply.
Types of analysis in modeling
Methods of socio-economic modeling involve the use of two types of analysis. We will analyze them for completeness of the discussed picture in more detail:
- Positive analysis is a type of analysis that deals with the establishment of true chains consisting of the causes of any economic process or phenomenon, as well as its consequences, without going into the assessment following these indicative statements.
This analysis can provide answers to such questions as “What?”, “Why?”, “What will happen if? ..” in the connotation of economic reasoning and research on problematic issues and the situation in this area of scientific knowledge. The standard scheme of cause and effect (for example: “commit a crime - you will be punished”, “overslept the alarm clock — you will be late for work”, etc.) is the most average and representative example of a statement that can lie at the root of a positive analysis of the basis of economic modeling.
- Regulatory analysis is an analysis that includes, among other things, a specific recommendation array, presenting the analyst with an assessment of the usefulness or, in other words, the desirability of any consequences arising from the economic process or phenomenon.
This analysis aims to answer questions of the type: “What needs to be done in order to? ..” Here, of course, one cannot do without the already mentioned recommendations, which can explain the essence of a given economic action in the prospect of its potential fulfillment or intentions to fulfill on the part of the subject of economic relations who used this analytical method.
According to the fundamentals of modeling economic processes, positive and normative analyzes are interlinked in the closest and strongest way, since the statements arising from normative calculations have the most direct direct effect on the subject of analysis carried out using a positive technique, as well as on the choice of this subject. , . .
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Any economic system (that is, an aggregate list of all processes in the field of economics that take place in a particular state or around the world on the basis of relations established in a certain way between participants in economic interaction, their property and the mechanism of functioning of economic apparatus and units) contains there are two levels of economic processes.
- Production and technological level - it describes the capabilities of each of the studied systems of the economy in terms of production activities.
When constructing a model based on mathematical data and relating to these very possibilities of producing a particular system, it is customary to divide it (the system) into several independent units that carry out production; these units are called elementary. Then each of these elementary units is analyzed and the specialist directly involved in the construction of this model describes their capabilities in terms of production and the ability to move resources and final material products to each other (through trade relations). The first possibilities should be presented in the form of various production functions, and the second - with the help of the so-called balance mathematical relations.
- Socio-economic level - it describes by what actions the production opportunities arising from the production and technological level come to their realization.
In this case of mathematical modeling of socio-economic processes, certain variable values must be found that directly determine the overall development of the economic process as a whole or in a single case; the production capabilities of each of the systems set such restrictions, within which you can find a large number of solutions to various economic problems. These variables are called controls or, in other words, controlling (influencing the studied factors) influences. The mechanism according to which the choice between different departments will be made should be determined exactly at the socio-economic level of the processes taking place in the economy.
Thus, the creation of models of these two process levels is directly necessary if the economist needs to describe how the economic system itself functions. Modeling of the socio-economic level, as a rule, takes place with much greater labor costs, because it is a rather complicated and labor-intensive process.
The fundamentals of modeling the economy, however, have a fairly extensive list of problematic phenomena that need not be described by modeling the second level of economic processes considered. These phenomena are called normative, that is, in them the very same controls are set that, during the further development of the model, lead the researcher to any positive results. The wording of the criteria, that is, direct descriptive definitions of what an economist can be accepted as a positive result, lies on the conscience of the specialist at the same stage of work.
Total
Summing up the article, it can be noted that all the products of the activity on mathematical modeling of economic processes can be divided into two broad classes in one way or another. Here's what they look like:
- The first class includes those models whose construction is due to the achievement of the goal of implementing the process of cognition of systems related to the economy (whether it be real systems or those that are entirely based on a hypothesis), their properties and other important factors.
- The second class includes those models whose individual technical parameters may be subject to a research assessment based on data coming from real economic experiments that have already been carried out.
Representatives of models from both of these classes can be useful if you need to make any economic forecasts or when an economic problem situation needs someone to find a solution to it.
The second class is divided into three ordinal subclasses of less level:
- The models of the organization (company) are used as the foundation for making any economic decisions at the level of production enterprises.
- Models of the national economy are used as the foundation for making any economic decisions at the level of the central authority responsible for the planning of economic production.
- Decentralized economy models are inherent in economic modeling methods that implement the ability to forecast or control economic processes and phenomena.
The problem of the methodological sense, which specialists most often encounter when trying to build any kind of economic model, is the problem of which mathematical equations are suitable in this case to describe the model itself. There are only two options: these may be differential equations, or there may be so-called finite-difference equations.
Thus, economic modeling is a complex multi-stage process that requires careful preparation by special specialists responsible for these economic methods of solving or predicting current problem situations in this scientific field. This article examined the most basic key points that need to be clarified for a complete understanding of the methodological process of socio-economic modeling and some other points that clarify this issue. We hope that you have found in this work all the answers that interest you and now you will be able to put into practice solutions to any economic problems or just be aware of this difficult topic. Having studied the methods of modeling economic processes, you can begin to master more serious and complex topics.