Which of the following is NOT true about economic models?

• A. Economic models simplify reality to focus on essential relationships.
• B. Economic models rely on assumptions to make complex problems more manageable.
• C. Economic models always provide perfectly accurate predictions of real-world outcomes.
• D. Economic models can be used to analyze both positive and normative questions.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand what an economic model is. Economic models are simplified representations of reality designed to focus on key relationships and variables, making complex economic phenomena easier to analyze.
2. Step 2: Recognize the role of assumptions in economic models. Assumptions help reduce complexity by setting conditions under which the model operates, allowing economists to isolate and study specific effects.
3. Step 3: Evaluate the statement about accuracy. Economic models are tools for understanding and predicting economic behavior, but they do not always provide perfectly accurate predictions because real-world outcomes can be influenced by many unpredictable factors.
4. Step 4: Consider the use of economic models in different types of analysis. Models can be applied to both positive economics (describing and explaining economic phenomena) and normative economics (making value judgments about economic policies).
5. Step 5: Identify the incorrect statement. Since economic models simplify reality and rely on assumptions, they cannot always provide perfectly accurate predictions, making the statement 'Economic models always provide perfectly accurate predictions of real-world outcomes' NOT true.