Introduction

This first model shows the dynamics of the small economy. It introduces some of the economic concepts used in additional models, and it also introduces some of the system dynamics elements to those not familiar with them.

The four different arrangements of arrows and boxes that you see on the screen, represent models of four different products—wheat, shoes, bread, and iPods—produced by this small economy. Each of these four models operates exactly the same so I will focus my explanation (and limit this simulation) to the model for wheat.

Explanation of Insight Maker Model

The interactive models on these pages provide a way for you to get an hands-on experience of the relationships between stocks and flows in an economic system. Although simple to use, the components of these models do require a certain amount of explanation.

Wheat Model

The arrow labeled "production rate - Wheat" represents the rate at which wheat is produced in this economy. The rate of production is stated in terms of bushels per year.

The arrow labeled "consumption rate - Wheat" represents the rate at which wheat is consumed in this economy. The rate of consumption is also stated in terms of bushels per year.

The production accumulates in the box labeled "Savings - Wheat" and the consumption reduces that accumulation. At any point in time the quantity of Savings - Wheat—stated in bushels—amounts to the accumulated quantity of wheat produced less the accumulated quantity of wheat consumed.

To create the simulation for wheat the model contains the following assumptions:

production rate = 1000 bushels per year
consumption rate = 980 bushels per year
beginning savings = 10,000 bushels (included in the Savings - Wheat stock)
total time period for simulation = 50 years (set in model parameters)

Other Three Goods

The models for the other three goods operate in exactly the same manner, even though they might assume different quantities. The simulation will not show these variables.

To transition to a generalized model let's move to step 2…