How does an economist define a good economic theory?
A) an abstraction from reality useful for explaining but not predicting behaviour (since theories are too simplistic)
B) an opinion that can be tested against economic data
C) an abstraction for the sake of argument
D) a statement or relationship that is used to explain and predict human behaviour

Question

Quizplus · Accepted Answer

A good economic theory should be both explanatory and predictive in nature. It should be able to explain the observed economic phenomenon as well as predict future outcomes based on the theoretical framework. Option A is incorrect because while abstract, economic theories should still be able to make testable predictions. Option B is too narrow as just testing against data is not sufficient to determine the quality of a theory. Option C is also incorrect as the abstraction should be used to derive clear conclusions about economic behaviour.

How Does an Economist Define a Good Economic Theory