Question

An economic model is purposeful simplification of reality, whose function includes:A. Understanding the full complexity of the real worldB. Predicting the behavior of each and every individual or organizationC. Analyzing the behavior of a typical or average consumer or firmD. Forecasting economic random events with a high level of accuracy

Answer 1

Answer:

The correct answer is C. Analyzing the behavior of a typical or average consumer or firm.

Explanation:

The simplification method will be of great help but forces us to decide which aspects of reality should be included in the model and which ones can be omitted. The answer to that question is that we try to build the simplest models we can, on the condition that they are able to answer the questions we ask. In this case we will focus on looking for the effects of economic policy on the well-being of people and companies, in the model of the global economy that we will develop there must be an authority that decides what the economic policy, people and companies will be.

For the models to be useful, they have to be simple. An economic model that was as complicated as the real world would be as useless as a current society without a monetary system. Of course, the simpler a model, the less questions you will be able to answer. And that is the tightrope by which we have to move in the simplification process. We try to design models that are rich enough to answer in detail the questions we ask and simple enough for us to understand and solve.