Google
Tuesday 
May 28, 2024 

AmosWEB means Economics with a Touch of Whimsy!

AmosWEBWEB*pediaGLOSS*aramaECON*worldCLASS*portalQUIZ*tasticPED GuideXtra CrediteTutorA*PLS
ACCOUNTING PROFIT: The difference between a business's revenue and it's accounting expenses. This is the profit that's listed on a company's balance sheet, appears periodically in the financial sector of the newspaper, and is reported to the Internal Revenue Service for tax purposes. It frequently has little relationship to a company's economic profit because of the difference between accounting expense and the opportunity cost of production. Some accounting expense is not an opportunity cost and some opportunity cost is does not show up as an accounting expenses.

Visit the GLOSS*arama


ABSTRACTION:

Simplifying the complexities of the real world by ignoring (hopefully) unimportant details while doing economic analysis. Abstraction is an essential feature of the scientific method. Hypothesis verification, model construction, and comparative static analysis are not possible without abstraction.
Abstracting from the details of the real world is essential to the study of economics and any other scientific endeavor. The scientific method would not, could not, exist without abstraction. For example, a market graph is NOT an actual market. It merely represents market activity. Analyzing price changes are easier with the abstraction of a market model.

Unrealistic?

Abstraction is often criticized for not being realistic. This charge is correct. Abstraction is most definitely not realistic. It would not be abstraction if it was realistic. Abstraction is the process of highlighting only relevant information for analysis.

When done correctly, the pursuit of knowledge is greatly enhanced by unrealistic abstraction. For example, when traveling across the country along an interstate highway, a paper road map is a handy, abstract tool. It shows towns and cities along the way, major intersections, rest stop locations, and other important points of interest. However, it ignores unimportant details. It does not show the location of every tree, bush, or blade of grass. This information does not enhance the road trip.

Abstraction Done Right

To be done correctly, abstraction must include important information but ignore unimportant information. Including unneeded details in a theory can be a waste of time. But ignoring relevant information disrupts the scientific method.

For example, analyzing the market for shoes requires information about the price of shoes and the quantity of shoes sold. Ignoring either of these defeats the purpose of the analysis. But what else should be included in the analysis? Sock prices? Shoe polish sales? Buyers' incomes? Gasoline prices? Hair color? Pulse rate?

Methods of Abstraction

Three common abstraction methods used in economics are words, graphs, and equations.
  • Words: One of the earliest methods of abstraction developed by humans is to represent objects and ideas with words. This is a handy way of doing economic abstraction, too. For example, writing the word "frog" on a piece of paper does not mean an actual frog is on the paper. The word only represents the idea of a frog. In the same way, economists use words to represent economic concepts, principles, and relations--such as money or income. The downside to words, however, is that they can have different meanings.

    Does "frog" mean an amphibious creature or a parched throat? How much money did Duncan Thurly make last year? Did he really make money or did he earn income? (Hint: "Making money" for anyone but the government is counterfeiting, which is illegal. In all likelihood, Duncan did not make any money last year.) Words can be confusing, eh?


  • Graphs: Pictures, especially graphical pictures, are often worth thousands of words. Many economic theories are abstractly represented with graphs. While the word "frog" could be misinterpreted as a parched throat, a picture of a frog can be used to represent this amphibious fellow more clearly. Many economic relations lend themselves to graphical pictures, especially lines and curves.

  • Equations: While pictures might be worth a thousand words, they are flat and two dimensional. As such, economic concepts, principles, and theories are often abstractly represented by equations. Graphs are an excellent way of representing relations between two variables, such as the price of shoes and the quantity of the shoes sold. Economics, however, is often interested in more than two things. This is where mathematical equations are useful. Equations are mathematical relations between variables. In principle, equations can represent relations between any number of variables. The relation between three variables Y, X, and Z can be represented by an equation such as:

    Y = 3 + 2X - 4Z.

    This equations shows the connection between X and Y, and between Z and Y. More variables can be added easily to this equation to represent more relations.


<= ABSOLUTE ADVANTAGEACCOUNTING COST =>


Recommended Citation:

ABSTRACTION, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: May 28, 2024].


Check Out These Related Terms...

     | economic analysis | graphical analysis | theory | comparative statics | model | verification | hypothesis | principle | cause and effect | data | empirical |


Or For A Little Background...

     | scientific method | assumption | variables | axiom | seventh rule of complexity |


And For Further Study...

     | sixth rule of ignorance | world view | fallacies | positive economics | economic science | assumptions, production possibilities | pure market economy | pure command economy |


Search Again?

Back to the WEB*pedia


APLS

BROWN PRAGMATOX
[What's This?]

Today, you are likely to spend a great deal of time strolling around a discount warehouse buying club hoping to buy either a coffee cup commemorating last Friday (you know why) or a wall poster commemorating the first day of spring. Be on the lookout for high interest rates.
Your Complete Scope

This isn't me! What am I?

Post WWI induced hyperinflation in German in the early 1900s raised prices by 726 million times from 1918 to 1923.
"The man who does not read good books has no advantage over the man who cannot read them. "

-- Mark Twain

MBA
Master of Business Administration
A PEDestrian's Guide
Xtra Credit
Tell us what you think about AmosWEB. Like what you see? Have suggestions for improvements? Let us know. Click the User Feedback link.

User Feedback



| AmosWEB | WEB*pedia | GLOSS*arama | ECON*world | CLASS*portal | QUIZ*tastic | PED Guide | Xtra Credit | eTutor | A*PLS |
| About Us | Terms of Use | Privacy Statement |

Thanks for visiting AmosWEB
Copyright ©2000-2024 AmosWEB*LLC
Send comments or questions to: WebMaster