Economists make assumptions to make it easier to model the business world. There are many factors that affect any economic system, such as the peculiarities of the population, and it is necessary to make assumptions to carry out calculations, estimations and theoretical conjecture.
Continue ReadingTo determine how the market behaves, taking into account all these variables is not practical. Not only is it very difficult to take into account the peculiarities of human beings, but the fact that their needs also change means that keeping tabs of them is also very difficult. To overcome these difficulties, economists usually come up with assumptions that make economic systems easier to understand. The assumptions are usually the product of observing human behavior and are what the average human being would do. Some of the classical assumptions include the fact that human beings have rational preferences and that they always choose the option that offers the maximum profit. The other common assumption is that people act in an independent manner and make choices after analyzing the information that they are given in a logical manner. Some authorities consider such assumptions to be misleading, primarily due to the fact that some of them are highly simplified and do not represent true human nature.
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