In an economic model, assumptions
A) must be applicable to all real-world situations.
B) must be eliminated before being used to make sure the model is realistic.
C) are not important in determining the usefulness of the model.
D) define the set of circumstances in which the model is most likely to be applicable in the real world.

Question

Quizplus · Accepted Answer

Assumptions in economic models serve the purpose of defining the set of circumstances in which the model is most likely to be applicable in the real world. This helps in understanding the limitations of the model and its ability to make accurate predictions. However, the assumptions need not be applicable to all real-world situations, and eliminating them may not always be necessary or feasible. Therefore, option D is the most appropriate answer.

In an Economic Model, Assumptions