A useful economic model
A)deals only with possibilities that actually occurred.
B)makes only realistic assumptions.
C)may make some unrealistic assumptions in order to simplify a complex reality.
D)should avoid drawing conclusions that have public policy implications, since economics is not equipped to make value judgments.

Question

Quizplus · Accepted Answer

Economic models are used to simplify complex economic realities and make predictions. To do so, they may make some unrealistic assumptions, although they should strive to make these as reasonable and justifiable as possible. However, unrealistic assumptions are often necessary to simplify the model and make it tractable, as well as to isolate specific relationships or mechanisms of interest. Ultimately, the usefulness of an economic model depends on how well it captures the relevant aspects of economic reality and predicts actual outcomes.

A Useful Economic Model