Scarcity of resources is one of the basic issue in the economy. Countries all around the world has limited amount of economic resources to fulfill the unlimited needs and wants. Therefore people need to select what to produce, how to produce and for whom to produce. These three fundamental questions required to accomplish in the most ideal way by effective utilization of resources. In this situation Economic models play a vital role in order to drive country towards it’s development and success.

It was found that “Economic models are simplified versions of reality used to analyze real world economic situations” (Hubbard, Garnett, Lewis and O’Brien, 2015, p.10). In other words Economic model is a simple explanation of reality. It is comprise of mathematical equations and it represent the expected behavior of the economy. It assist economist to examine, recognize and make perditions about real world economic. As the economy is consist of many economical problems, economic models help to simplify the complex economic process and find the answers to problems. Furthermore economist use several models to analyze the one economic problem.

The below graph explains the production possibility frontier (PPF) of rubber and plastic. For example assume that the economy produces only two types of products called rubber and plastic at a time and all other goods and services are constant.