UK0,M<$b@mevgɦmJ8s =-bU#b5')byiDz)%2.&_NKpGtJ|QGdr:>Fj0rA ؞F&!| 4`,mz3[
Study notes

Assumptions in Economics

  • Levels: AS, A Level, IB
  • Exam boards: AQA, Edexcel, OCR, IB, Eduqas, WJEC

What are assumptions in economics?

  • Assumptions are initial conditions made before a micro or macroeconomic analysis is built.
  • Sometimes assumptions are used for simplification
  • Assumptions can be used to isolate the effects of a change in one variable on another
  • Many assumptions are criticised for being unrealistic

What is the ceteris paribus assumption?

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.

Behavioural economics

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:

  1. Helps to simplify analysis – helps to make the complex less daunting
  2. Assumptions highlight the problem under investigation
  3. Help economists to use maths in quantifying effects

Subscribe to email updates from tutor2u Economics

Join 1000s of fellow Economics teachers and students all getting the tutor2u Economics team's latest resources and support delivered fresh in their inbox every morning.

You can also follow @tutor2uEconomics on Twitter, subscribe to our YouTube channel, or join our popular Facebook Groups.

Job board

Apple Teachers Ltd

Part time Teacher of Business and or Economics (0.4/0.5), Apple Teachers Ltd


Related Collections

Teaching Vacancies


Advertise your vacancies with tutor2u

Much cheaper & more effective than TES or the Guardian. Reach the audience you really want to apply for your teaching vacancy by posting directly to our website and related social media audiences.

Find our more ›

Advertise your teaching jobs with tutor2u