An economist creates a model to understand how consumers choose between different grocery stores. The model is built on the assumption that shoppers have complete knowledge of all prices at all stores and face no travel costs. While these assumptions are clearly not true in the real world, the model's predictions about how a store's overall market share changes in response to a chain-wide price reduction are consistently accurate. What is the most valid conclusion about the usefulness of this mo

Critique of an Economic Model's Assumptions

An economic model of labor supply is considered fundamentally flawed and should be discarded if it assumes workers can freely choose their hours, because in reality, most jobs have fixed schedules.

Evaluating a Simplified Trade Model

Value of Simplified Models

Match each simplified economic model with the most appropriate evaluation of its usefulness, based on the principle that a model's value is judged by the insight it provides, not its perfect realism.

An economist develops a model to explain long-term trends in national savings rates. The model assumes that all individuals live for exactly two periods: one working period and one retirement period. A critic argues the model is useless because, in reality, people's lifespans vary greatly and are not fixed at two periods.

Which of the following is the most effective rebuttal to this criticism?

Choosing the Right Model for Policy Advice

Justifying Simplifications in Economic Modeling

Evaluating Competing Views on an Economic Model