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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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What is scarcity? Can you think of two causes of scarcity?

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