Final answer:
The fallacy of what may be true for an individual or small group not necessarily being true for the whole economy at the macro level is known as the fallacy of composition. The correct answer is option c.
Step-by-step explanation:
When analyzing economic phenomena, it is crucial to recognize that what may hold true for an individual or small group (microeconomics) may not necessarily apply when considering the whole economy (macroeconomics). A classic mistake is to ignore the scale of economic interactions and the potential for small side effects in microeconomics to become magnified at the macroeconomic level, thereby significantly altering outcomes.
This oversight is known as the fallacy of composition, which is the erroneous belief that what is true for the part is also true for the whole. In contrast, the ceteris paribus assumption, often used in economic analysis, simplifies the understanding of how each economic event affects each market by examining one event at a time while holding all other factors constant.
Therefore, when making the transition from micro to macroeconomic thinking, it is essential not to fall into the fallacy of composition. A practical approach to microeconomic policy must consider the specific strengths and weaknesses of markets and government without defaulting to the assumption that either is always beneficial or harmful. Recognizing this fallacy helps to avoid simplistic conclusions about complex economic systems and policy decisions.