A) Thinking like an economist: the process of developing models in economics, including the need to make assumptions:
Economists try to understand the economy through making assumptions to help them create models. These assumptions help to simplify their analysis. For example the production possibility frontier (1.1.4) is used in order to simplify two products to help illustrate the maximum productive potential, opportunity costs and efficiency as well as challenge whether these are realistic assumptions. For example, an economy may be difficult to maintain at full capacity and moreover is unsustainable operating at points outside of the PPF curve.
B) The use of the ceteris paribus assumption in building models:
The majority of the models used in Economics assume that all things remain equal (Ceteris paribus) thus allowing them to focus on the particular changes in the economy that will take place as a result policy changes. For example, when identifying the effects that a decrease in interest rates will have on the Aggregate demand, only components of Aggregate demand will be considered. However, other determinants of the impacts that are not included due to ceteris paribus may be included as evaluation e.g. it may depend on business confidence levels, if it is low then the increase in investment and therefore AD may be lower if business confidence is low. Overall, ceteris paribus helps to simplify the analysis for the economist.
C) The inability in economics to make scientific experiments:
Rather than proving the relationship between two variables through experiments, economists do this through the use of simplified models. For example, the Phillips curve helps to explain the relationship between employment and inflation. There are many models used in Economics and this can make it easier to justify changes within the economy.