"Assume that all individuals have perfect information about prices now and in the future, that they have identical tastes, that all markets are competitive, and that there is no government." This statement is an example of how economists
A)apply the law of supply and demand.
B)employ marginal analysis.
C)are prevented from getting correct answers.
D)ignore reality.
E)use unrealistic assumptions to develop theory.

Question

Quizplus · Accepted Answer

The statement is an example of how economists use unrealistic assumptions to develop theory. By assuming perfect information, identical tastes, competitive markets, and no government intervention, economists can simplify complex economic systems to build theoretical models and analyze the effects of changes in variables. However, in the real world, these assumptions do not hold, so the models may not always accurately predict real-world outcomes.

"Assume That All Individuals Have Perfect Information About Prices Now