What is the most misunderstood economic concept?

My answer on Quora:

That there are laws in economics.

In economics, every answer begins with “it depends”. This can be frustrating when you want a straight answer, but it is useful because you have to look at all the circumstances in a particular case before responding with a policy, for example, to fix something that needs to be fixed. This is because all theories in economics depend on assumptions, and if the critical assumptions do not hold in a specific case, then that theory is no good for that situation.

For example, those that quickly jump to the “free market” as the answer to every problem and “government intervention” as the source of every problem often to fail to recognize that the assumptions made for free markets to function optimally often don’t hold up to reality (full and complete information, equal access to resources, etc.). Ideology is dangerous for economic policy.

Unlike the natural sciences, there are no laws of human nature. Economics provides models that can be applied to specific situations, but none that can be applied to all situations. So, it depends.

 

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