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Chapter 1: Q.25 (page 25)

Why is it unfair or meaningless to criticize a theory

as “unrealistic?”

Short Answer

Expert verified

Theories always give a basic understanding of how the economy works under specific assumptions.

Step by step solution

01

Step 1.Economic theories 

In the study of economics, theories are based on assumptions under which theories are proven right but unrealistic because those assumptions can not be applied universally.

Though, such theories are still important because they make us understand how the economy works.

02

Step 2. Explanation 

For example- In comparative advantage theory,

the assumptions are

  • There are only two countries.
  • They produce the same commodity.
  • Tastes are similar in both countries.
  • The only factor of production is labor.

In reality, these assumptions are unrealistic because one country does trade with many countries with varieties of goods but still this theory introduces us to opportunity cost which helps in choosing between different options for production.

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Most popular questions from this chapter

What is the position of households in the goods and service market and in the labor market?

Discuss each one of the following from the standpoints of equality and efficiency.

  1. “Everyone in the society should be guaranteed the best healthcare possible.”
  2. When workers are laid off, they should be able to collect unemployment benefits until they find a new job.”

Suppose America decide to save more of their incomes. If banks lend this extra saving to business that use the funds to build new factories, how might this lead to faster growth in productivity? Who do you suppose benefits from higher productivity? Is society getting a free lunch?

Can you think of ways that globalization has

helped you economically? Can you think of ways that it

has not?

The main reason that some nations have higher average living standards than others is that

A. the richer nations have exploited the poorer ones.

B. the central banks of some nations have created more money.

C. some nations have stronger laws protecting worker rights.

D. some nations have higher levels of productivity.
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