Choose the statement that best characterizes an economic theory.An economic theory
A)must be judged on its ability to explain and predict real- world phenomena.
B)is only useful if its underlying assumptions are realistic.
C)will predict more accurately if it contains a greater number of mathematical equations.
D)will be useful only if all human behaviour is rational.
E)will be useful as long as it is logically consistent.

Question

Quizplus · Accepted Answer

An economic theory should be judged on its ability to explain and predict real-world phenomena, which means it should be tested against empirical data to evaluate its accuracy and usefulness. This is the essence of the scientific method that applies to all social sciences. The other options are either too narrow or too broad in their criteria for evaluating economic theories. For example, option B implies that economic theories must have realistic assumptions, but this is not always possible, especially in models that simplify or abstract from reality to capture essential features. Option C suggests that mathematical complexity improves predictive power, but this is not always true, and sometimes simple models outperform complex ones. Option D assumes that human behavior is always rational, which is not realistic or necessary to make sense of economic phenomena. Finally, option E suggests that logical consistency is sufficient for an economic theory to be useful, but this is not the case unless the theory also conforms to reality.

Choose the Statement That Best Characterizes an Economic Theory