Why must all economic models involve simplifications?
A) because economic models are generally mathematically based
B) because human behaviour is very erratic and unpredictable
C) because reality is too complex to understand in its entirety, so it must be reduced to a level that can be understood
D) because economic models always try to duplicate all possible information and cover all possible variables that might influence decision making

Question

Why must all economic models involve simplifications?  
A) because economic models are generally mathematically based 
B) because human behaviour is very erratic and unpredictable 
C) because reality is too complex to understand in its entirety, so it must be reduced to a level that can be understood 
D) because economic models always try to duplicate all possible information and cover all possible variables that might influence decision making

Quizplus · Accepted Answer

Economic models are created to simplify reality into a level that can be understood and analyzed. The complexity of reality makes it impossible to take into account all variables and as such, models need to make assumptions and leave out details to provide a workable framework for analysis. This is done in order to make the model more manageable and applicable to real-world scenarios.

Why Must All Economic Models Involve Simplifications