Micro 14 15 assumptions theories and models

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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 (cont) 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 (cont) 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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