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Fallacy of Composition in Economics

[Summary]What is fallacy of composition? definition and meaning Definition of fallacy of composition: The false assumption that something which is true for one segment of the economy is true for the economy as a whole. For instance, if one state has an inflat

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What is fallacy of composition? definition and meaning

Definition of fallacy of composition: The false assumption that something which is true for one segment of the economy is true for the economy as a whole. For instance, if one state has an inflated unemployment rate then the whole United ...

Fallacy of composition

The fallacy of composition arises when one infers that something is true of the whole from the fact that it is true of some part of the whole (or even of every proper part). For example: "This fragment of metal cannot be fractured with a hammer, therefore the machine of which it is a part cannot be fractured with a hammer." This is clearly fallacious, because many machines can be broken apart, without any of those parts being able to be fractured.

Two important economic concepts: the 'fallacy of composition' and the 'fallacy of decomposition' - AEI

Fallacy of Composition in Economics

Economics professors typically cover the “economic way of thinking” in the first chapter of a principles of economics course. After covering 8-10 of the most important guideposts and principles of economic thinking, the first chapter of an ECON 101 textbook typically ends with a section on the various “pitfalls to avoid in economic thinking.” Those [...]

Fallacy of Composition | Muddy Water Macro

A fallacy of composition is a logical error that arises when a fact that holds for a component or part is extended and asserted to hold for an entire system or unit. For instance, while atoms are invisible to the human eye and the Earth is composed of atoms, the conclusion that the Earth is invisible is clearly invalid. Fallacies of composition appear in several prominent economic arguments. In the paradox of thrift, when a thrifty individual saves more, his or her net worth rises. However, higher saving across the economy will not increase societal net worth since saving more requires spending less, destroying income for another member of society. In fact, an increase in collective savings can actually lower wealth for everyone if it diminishes the size of the economic pie. For a more thorough explanation, see Paradox of Thrift: Keynesian Response to Say’s Law.

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