To oversimplify is to take a subject and reduce it down to such a simple explanation that some meaning is lost.
When you try to explain a complicated economic concept and you lose such simple terms that you distort the meaning of the economic concept, this is an example of when you oversimplify.
To simplify to the point of causing misrepresentation, misconception, or error.
To cause distortion or error by extreme simplification of a subject.
To simplify to the point of distortion, as by ignoring essential details.