Essay on An Assessment of the Economic Way of Thinking

835 Words Sep 18th, 2013 4 Pages
Salah Benkhalaf
(Student ID # 30100872)
July 23, 2013
BSM407: Business Economics
Dr. William Middleton

The main goal of economics is to reconcile the unlimited wants of an individual or society and the scarce resources that they have to satisfy these wants and needs. Whenever resources—categorized into three major groups namely land, labor, and capital—are not efficiently used, economists see this as a problem and they try to come up with solutions. The economic way of thinking is the prescribed way of solving real world problem which involves the following steps: (1) identifying the problem, (2) developing a model based on simplified assumptions, and (3) collecting
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According to Varian, economic models “pretty much look the same. There are some economic agents. They make choices in order to advance their objectives. The choices have to satisfy various constraints so there's something that adjusts to make all these choices consistent.” (Varian, 2009)
Finally, once a model is formed with the necessary variables included to explain the economic problem, it has to be tested using relevant and available data to establish its worth for future use. If the data confirms the relationship suggested in the model, then it can be used to predict how the variable under investigation will behave when there are changes in the variables that have been proven to affect it.
Despite having a prescribed way of thinking and arriving at solutions to economic problems, economists disagree on issues that are not testable and that depend on analysis that is based on value judgments. This is unavoidable because each economist (and any individual for that matter) has their own subjective preferences that they have accumulated from their different experiences and different backgrounds.
The second and third steps in economic way of thinking discussed above

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