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M.E Assignment 2M

Microeconomic theories cannot be accepted or rejected with perfect certainty for three reasons: 1. Theories are based on basic rules and assumptions about human behavior, which is uncertain and changing, unlike scientific theories based on experiments. 2. Theories must be tested against observations and often updated or rejected over time as human tastes, circumstances, and behaviors change. 3. For example, the theory of the firm does not perfectly explain why firms do not always maximize profits, and the law of demand is not always true, such as demand for winter clothes in summer.

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82 views2 pages

M.E Assignment 2M

Microeconomic theories cannot be accepted or rejected with perfect certainty for three reasons: 1. Theories are based on basic rules and assumptions about human behavior, which is uncertain and changing, unlike scientific theories based on experiments. 2. Theories must be tested against observations and often updated or rejected over time as human tastes, circumstances, and behaviors change. 3. For example, the theory of the firm does not perfectly explain why firms do not always maximize profits, and the law of demand is not always true, such as demand for winter clothes in summer.

Uploaded by

Izna
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Assignment 2M Submitted to: Submitted by:

Ms Marium Hina IZNA

Why is it not possible to accept or reject any microeconomic theory with


perfect certainty?
Theories are developed to explain observe phenomenon in terms of a set of basic rules and
assumptions. Micro economics theories study the isolated and interactive behavior of small
individual units that make up economy, namely, consumers, firms, and markets or industries. Its
main focus is on following:
Demand, Supply, Elasticity of demand and supply, Marginal utility, Diminishing marginal
utility, Market structures, Role of prices and profits in determining in resource allocation.
These all concepts need a primary interactions with human behavior, unlike scientific theories
which are perfectly based on facts and figures and close experiments. Micro economics theories
usefulness and validity depends on whether it is succeeded in explaining the phenomenon
predicted. These theories are often tested against observations and as a result of this testing these
theories keep on updating and sometimes rejected in a particular time. And as these theories are
based on human behaviors that are always uncertain and keep on changing according to times
and situations it is very difficult to 100% predict them. As by the time, they change with the
change in human taste, weather, region, and circumstances. So by the change in human behavior,
firms also change their behavior. And theories also keep on updating and refused.
For example, theory of firm, as firms always do not tend to increase their profits so this theory is
not 100 % true in explaining firm’s behavior. For example law of demand states that demand
will increase with decease in price but this is also not true in many cases like demand for winter
clothes cannot increase in summer whether price is low or not.

There are two options, first to buy 5 movie tickets or second to buy 2 cricket
match ticket. These options are available to Ruby where she is willing to trade
3 movie tickets for 1 cricket match ticket that means she likes cricket more
than watching a movie. Is it true or false? Explain your answer.
First there given two options from which Ruby have to select either 5 movie tickets or to buy 2
cricket match or she can make market baskets for her choices and then make preferences. But the
next statement stats that: Ruby s willing to trade 3 movie tickets for 1 cricket match ticket and
question here is whether the statement that she like cricket match more than movie ticket is true
or false.
This statement is false. As there are many variables not provided causing this statement to be
false. Firstly the values for both things is not given, budget of Ruby is also not given. It’s all
about consumer behavior and consumer preferences, particularly in this case and there are many

Department of Commerce Micro Economics Sunday, May 10, 2020


FJWU
Assignment 2M Submitted to: Submitted by:

Ms Marium Hina IZNA


assumptions we can make for Ruby preference of cricket match ticket over movie ticket. The
value of the cricket match ticket may be significantly higher than movie tickets. Ruby may like
movies more than cricket match, but may take the trade if cricket match ticket is worth a lot
more. In this case she can chose to buy cricket match ticket (maybe it’s on a discounted price) or
in return sell or trade the cricket match ticket for something of greater value than 5 movie tickets.
Another possibility is that there may be scarcity of cricket match tickets. If Ruby cannot acquire
a cricket match ticket through any other venue or this is her best option, he decision would also
make sense in absence of preferring cricket match to movies. Ruby may have more movie tickets
or able to easily acquire them in future. Overall, conclusion is not necessarily true in my opinion.

Department of Commerce Micro Economics Sunday, May 10, 2020


FJWU

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