Updated: Aug 20, 2021

A theoretical system of relationships which tries to capture the essential elements of a situation in the real world. Any real-world problem will, in general, consist of a large number of variables with a large number of often complex relationships between them. If any headway is to be made in the analysis of such situations, it is necessary to try to isolate the most important elements and to disregard the rest. Although this may mean that a mode! is ‘unrealistic’ in the sense that it does not completely describe the actual situation, it may still give us far more insight into a problem, and far greater predictive ability, than would a less abstract approach which tried to take everything into account.

Reference: The Penguin Dictionary of Economics, 3rd edt.

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James Knight
Editor of Education
James is a lead content editor for Invezz. He's an avid trader and golfer, who spends an inordinate amount of time watching Leicester City and the… read more.