1. A good economic theory: a.

Involves some simplification of reality.Economics as a broad subject, there is a simplicity needed toexplain the phenomena in real perspective. In many cases, we didnot get available data for the theory. So we used some secondarydata and find conclusion using this. Theory is a simplifiedpresentation of how two or more variable interact with each other.A good theory should be simple to understand.The most important features of a good economic theory are:parsimony, tractability, conceptual insightfulness, generalizing,falsibility, empirical consistency and predictive precision. Thesimplified but generalized theory can explain the concept in asimple format. The real world issues are more complex and it is noteasy to make conclusion from the given data. Most of the economictheories are based on some assumptions. This will help to finddecisions on the basis of the assumptions. One of the mostimportant assumptions in Economics is ceteris paribus, means thatother things remain the same. This ideal and basic assumption usedin several theories in Economics. The simplification of theory canhelp to understand the concept in layman perspective.