Chapter 2, Problem 5MCQ

To determine

The question requires us to identify the most suitable options which explain the reason why economists make assumptions.

Explanation of Solution

Economic models are a simplified version of a real-life scenario. Economists used models to represent a complex situation in simple or layman's terms. Generally, economists make assumptions when they develop a model. These assumptions help them focus on the impact of only one change at a time.

Suppose an economist is developing a theory to show the relationship between inflation and the unemployment rate, for that he will assume all other factors constant and focus only on the change in the inflation rate and how it is related to the unemployment in the economy. If the economists do not keep all other factors constant, then reaching a particular conclusion would be difficult because all the variables (or dynamic factors) will give the ambiguous result.

Therefore, an assumption will allow the economist to focus on the change of one factor at a time.