An economic model is a simplified version of reality that can be utilized to emphasize and make clarity about an economic situation.
An economic model is a simplified depiction of reality that is intended to generate testable hypotheses regarding the economic activity. Due to the fact that there are no objective indicators of economic results, a fundamental element of an economic model is that it is inevitably subjective in construction.
Economic models are classified into two types:
Theoretical models strive to infer verifiable conclusions about economic behavior based on the premise that individuals maximize specified objectives subject to well-defined model restrictions.
Empirical models, on the other hand, seek to validate theoretical models' qualitative predictions and transform them into accurate numerical outcomes.
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