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I've just started to read an excellent textbook "Macroeconomics" by Gregory Mankiw. In the beginning he explains how economists think:

Young children learn much about the world around them by playing with toy versions of real objects. For instance, they often put together models of cars, trains, or planes. These models are far from realistic, but the model-builder learns a lot from them nonetheless. The model illustrates the essence of the real object it is designed to resemble. (In addition, for many children, building models is fun.)

Economists also use models to understand the world, but an economist’s model is more likely to be made of symbols and equations than plastic and glue.

Then he explains what endogenous and exogenous variables are and

To make these ideas more concrete, let’s review the most celebrated of all economic models—the model of supply and demand

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The above is obviously a toy model of Supply and Demand. But since nobody will start building a new car having only a toy model of it, I suppose that there must be some empirical research showing how Supply and Demand curves behave in real life and how equilibrium is reached which are used by economists for decision-making etc.

Is there any article or probably textbook which contain an example of working model (i.e. an opposite of the toy model) of Supply and Demand? I'd like to grasp the difference between toy and working model of Supply and Demand.

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    $\begingroup$ As an unrelated comment, this might interest you. Economists think in many different ways. $\endgroup$ – luchonacho Aug 3 '17 at 9:25
  • $\begingroup$ @luchonacho Thanks - a very interesting site! $\endgroup$ – zer0hedge Aug 3 '17 at 9:35
  • $\begingroup$ What you exactly want may depend on your context. Different models exist for looking at the market for potatos or the macroeconomy. Furthermore, a more complicated model is only necessary for insights that this model cannot produce. As this model can already answer several questions, the more comlplicatd type of model you're asking for depends on the questions about the economy you want to answer. $\endgroup$ – BB King Aug 3 '17 at 11:47
  • $\begingroup$ @BBKing I just want to see any real model, i.e. where supply and demand are not just arbitrary lines but are estimated based on empirical data $\endgroup$ – zer0hedge Aug 3 '17 at 14:13
  • $\begingroup$ The problem with that is that a model is theoretical, while estimation is empirical. An estimated demand curve would not be a "model". Also, are you interested in just the slopes of the curves or the shape as well? Theoretically it is impossible for suppy to slope downward, so estimation is not really needed there, unless you're interested in what shape exactly it has for some industry. Even then, however, it would differ by industry and not help us much for a model. Demand is a bit trickier. Are you interested in empirical estimations of demand and supply curves (which would not be models)? $\endgroup$ – BB King Aug 3 '17 at 14:45
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Industrial Organization is the field concerned with estimating supply and demand relationships in individual product markets. You can see for example Einav and Levin for a description of what empirical IO people are up to. The specific models are usually much more complicated than what you learn in Mankiw, tailored to specific markets, and very strong assumptions are required to estimate them. For recent IO papers, you can see for example the NBER working paper series.

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  • $\begingroup$ Thanks for your answer. Unfortunately, I didn't find anything like supply or demand curve among the NBER working paper. Do you have some of them in mind? $\endgroup$ – zer0hedge Aug 4 '17 at 19:18

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