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Unformatted text preview: ve to simplify the world Complexity is by far the biggest problem
economists face Therefore, critical first step involves
simplifying so that we focus on only those
aspects critical to the particular problem Often a subjective process, which can lead to
disagreements between economists Common economics assumptions: 16 Assumptions, theories and models
Theories: generalized causal relationships between
variables Often based on simple observation when variable A increases, I notice that variable B
decreases; hmmmm… Theories attempt to: explain past occurences or phenomenon
predict future occurrences 17 Assumptions, theories and models
Models: quantitative representations of the
problem being analyzed Could be households or people, firms,
governments, markets, etc. Models allow quantitative predictions Example: When Pbeer by 5%, Qbeer by
10% ECONOMICS: WH...
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- Spring '07