Economic Way of Thinking. Mathematics & Economics Essay

  Economic Way of Thinking   Name Course
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Date               The elements of the economic way of thinking are: the use of assumptions to simplify the analysis, exploring the relationship between the two variables by ceteris paribus, thinking at the margin, and rational people respond to incentives. While making assumptions in economics, it is necessary to simplify the analysis, where the complex world is made easier. For instance, to evaluate the trade flow, assuming that there are only two trading partners helps determine the inflows and outflows as would be expected for various countries trading. It is rare for countries to have close economies. The assumptions made are as realistic as possible or else, the analysis is misleading. The relationship between inflation and unemployment rate, there is an assumption that there is a trade-off, and when this does not hold, the situation is unusual.  At the same time, economists, start from assumptions about the behavior of people, that people are rational, know their needs and are interested in their welfare. The assumptions are made when studying the impact of short-run and long-run economic variables. Ceteris Paribus means holding “everything else constant,” and it is useful to analyze the relationship between two variables when assuming that the other variables do not influence the outcome. For instance, the demand for cars depends on the price, the income of people, and the price of other goods, the price of gasoline as well as tastes and preferences other variables that influence deman...