Improving Aggregation Validity

The aggregation problem stems from the fact that while most economic activity originates with individual firms and households, economists, with increasing frequency, want to say something about the behavior, in the aggregate, of all or a group of such units. One obvious approach is to build up to the aggregate, firm by firm. This is not feasible in an atomistic economy such as agriculture. A second approach is to ignore the individual units by working with observed or postulated relationships among economic aggregates. A third alternative, especially for an atomistic or purely competitive economy, is to approach the aggregate through "representative" units or through the analysis of subaggregates.