All theory is an abstraction from reality. If it were not, it would merely duplicate the world in
all its complexity and would add little to our understanding of it.Predictions
A theory’s predictions are the propositions that can be deduced from it.
They are often called hypotheses. For example, a prediction from a theory
of the global oil market is that a rise in the world price for oil will lead
Canadian oil producers to produce and supply more oil. Another
prediction in the same market is that a decision by the members of the
OPEC cartel to reduce their annual output of oil will lead to an increase in
the world price. The economic logic behind such predictions will be
explained in several chapters of this book; for now we can proceed to see
how economists test such predictions or hypotheses.