An observed fact is something the question reports as having happened. A model assumption is something the model takes as given so that the reasoning can work. Good answers show which is which.
This lesson belongs to evidence-based economic answers. It also supports stating assumptions and limitations without ideological conclusions.
How do you tell them apart?
Ask two questions of each sentence. Did this happen, with a figure or a place? If yes, it is an observed fact.
Is this what the model needs to be true for the reasoning to work? If yes, it is an assumption.
A third kind is a conclusion, which follows from the first two. A conclusion needs both a fact and an assumption behind it.
Worked example: a fictional notebook market
A fictional shop sells 500 notebooks a week at RM5 each. It raises the price to RM6, and sales fall to 420 a week. A student writes: “Demand fell because the price rose.”
Observed fact. After the price rose from RM5 to RM6, weekly sales fell from 500 to 420. The fall is 80 notebooks, or 16%.
Model assumption. Nothing else that affects notebook buying changed in the same weeks. This is ceteris paribus. The question does not say it happened, so it is assumed.
Conclusion. Given the assumption, the fall in sales is explained by the higher price, a movement along the demand curve.
| Statement | Type | Test |
|---|---|---|
| Sales fell from 500 to 420 | Fact | Reported as having happened, with figures |
| No other buying factor changed | Assumption | Needed for the cause claim, not reported |
| The price rise caused the fall | Conclusion | Follows only if the fact and assumption hold |
The mistake that costs marks
The common slip is to write the conclusion as if it were a fact: “The price rise caused sales to fall”. It reads as reported, yet the question only gave two observed figures.
The fix is to add the assumption in a clause: “If nothing else changed, the higher price explains the fall in sales.” Now the marker can see that the claim is conditional, and what it is conditional on.
| Step | Wrong | Right |
|---|---|---|
| Sales fell | Stated as cause | Stated as an observation |
| Other factors | Not mentioned | Assumed unchanged, and said so |
| Claim | Certain | Conditional on the assumption |
A quick check for the assumption: what else could have reduced notebook sales in those weeks? A school holiday would be one. If the question mentions such a change, the assumption fails and the cause claim weakens.
Check yourself
Sort each statement about the fictional notebook shop as Fact, Assumption or Conclusion.
- (a) Weekly sales were 420 after the price rose.
- (b) Buyers have the same incomes in both weeks.
- (c) The shop’s revenue fell from RM2 500 to RM2 520, so a price rise is always good for the shop.
- (d) Revenue rose by RM20.
Answer
(a) Fact: reported with a figure.
(b) Assumption: needed for the comparison and not reported.
(c) Conclusion, and a faulty one: revenue went from 500 × 5 = RM2 500 to 420 × 6 = RM2 520, which is a rise, not a fall. Also, “always” goes beyond one week’s figures.
(d) Fact derived from the figures: 2 520 − 2 500 = RM20.
What to study next
Go on to developing a short causal chain with a stated limiting condition, then the cluster practice set. The supply-demand diagram reasoning explorer shows the movement along a curve that this example uses.
If a teacher checking your assumption wording would help, see online one-to-one Economics tuition.