Question

outline key assumptions and desired properties commonly used economics

Answer 1

The five major key assumptions of economics are

1. The wants of the society are unlimited, but the resources are scare to satisfy the wamts

2. The scarcity of resources leads to choices and thus leads to a trade-off

3. The goal of all in making their choices is to maximise the satisfaction which refers to the utility concept in economics

4. The act of each individual would be rational by making a comparison of the marginal utility and marginal benefit of each case.

5. The real life situations and responses in an economy can always be represented in a simplified model and graphical methodology

The above are the five major assumptions that are made in an economy. It states that people always have rational preferences in an economy and the actions of the consumers in an economy would be always concentrated on increasing the self satisfaction of an individual which explains the utilitarian model of economics. All the demand in an economy would influence the supply of an economy which is based on the Law of supply and demand model put forward by Adam Smith. Also we can see that the limitations in the trade would lead to the expansion of the domestic and local economy which would lead to a more efficient and stable domestic economy in the long run. All the individuals are always seen to act independently while taking the economic decisions in a market. Thus, it can be seen that all the models of the economy would be concentrated on the behaviour of the individual in an economy as well as the changes that would be induced in the economy as a result of the changes in the market behaviour.