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Social Studies
30 October, 01:44
Why does theory not match reality? in economics
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Aracely
30 October, 01:49
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Economic theory tries to represent reality using models.
Models are simplifications of the real world. A set of assumptions is used to build that simplification. Models are constituted by a group of variables, and mathematical relationships are established among them.
Even tough the simplifications contained in models entail certain limitations, economic models are useful to draw conclusions, starting from a simpler scenario, which afterwards can be applied to analyze complex real structures theoretically.
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