An economic model:
A)is useful for explaining past economic conditions but not for predicting.
B)often leads to faulty conclusions because of the ceteris paribus assumption.
C)allows nothing to change in the economic situation that is being described.
D)is a simplified version of reality used to understand real-world economic conditions.

Question

Quizplus · Accepted Answer

An economic model is a simplified version of reality used to understand real-world economic conditions. It helps economists to analyze economic situations and make predictions about future events. Although the ceteris paribus assumption is often made in economic models, this is necessary to isolate the effect of a single variable for analysis, rather than leading to faulty conclusions.

An Economic Model