What are assumptions in economics?
To simplify analysis, economists isolate the relationship between two variables by assuming ceteris paribus – i.e. all other influencing factors are held constant
For example - when considering the demand for a product such as electric vehicles, we might focus on the effects of changes in the price of the product itself, whilst isolating the impact of changes in factors such as real incomes of consumers, interest rates on loans to finance a car purchase and many other variables.
In October 2017, Professor Richard Thaler was awarded the Nobel Prize in Economics for placing "psychologically realistic assumptions into...economic decision-making"
Reasons why economists use assumptions in their economic models:
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