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The wider the range of things it can explain, and the more accurate its predictions about these things, the more fruitful the research program is. Sets of definitional assumptions (and their corresponding research programs) are never "true" or "false." They can only be more or less useful in finding the answers to particular problems.
The second type of assumptions made by economists are empirical assumptions that distinguish how the world actually functions from the many ways in which it might imaginably function. The assumption of a diminishing marginal rate of substitution in the theory of consumer behavior is an example of an empirical assumption. Another example is the assumption that purchases of a good by an individual consumer has no effect on market demand and relative prices. The most fundamental empirical assumptions are seldom directly testable. They should, however, have the property of simplicity, or freedom from excessive qualification, and they should imply many frequently tested propositions about real-world events.1 The observation that we almost never see a consumer who specializes in the consumption of one particular good is, for instance, consistent with the assumption of a diminishing marginal rate of substitution.
We will consider other empirical assumptions that underlie economic analysis in later chapters. One of the strengths of economics is that there are a small number of such assumptions. By grasping these assumptions and by learning how to apply them consistently, you will be able to read, understand, and, ultimately, construct quite comprehensive and sophisticated explanations of why it is that things turn out the way they do in the various institutions and situations that surround us.
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