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Assumptions in rational economics

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Economists are often criticized for making assumptions. Why are assumptions necessary? To think about this, you might consider an assumption that is often made: people are ratonal. Do you think that people are rational, and how could you construct a model of irrational behavior? Would that be a better assumption to make?

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Assumptions are necessary whenever we need to make a decision or even to understand something that is hypothetical, which most economics problems are.

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Assumptions are necessary whenever we need to make a decision or even to understand something that is hypothetical, which most economics problems are. How long will it take to drive from your home to another nearby city? You would need to assume that your car will not break down, you will not get lost, or that there will not be an accident which will stop traffic. These are examples of assumptions.

In economics, we need to make assumptions about how people will react, given a certain economics model. For example, what would the results be if a bar offers beer at $4 for a 16 oz glass and $5 for a 22 oz schooner? We need to ...

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