How does an economic model attempt to explain puzzling behavior? What features would be desirable in an economic model?
What will be an ideal response?
An economic model attempts to show that an observed human behavior is a result of rational decision making occurring in response to certain incentives and constraints. One desirable feature of an economic model is that it have testable implications. When an economic explanation of a phenomenon can be extended to generate new predictions, real-world observations can be used to support or refute the model. A second desirable feature is robustness. If the assumptions of the model do not enter in a crucial way, then the results and predictions will likely hold under other similar circumstances.
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The correct expression for cost plus pricing is
A) Price = Cost (1 + profit margin). B) Price = Cost + profit margin. C) Price = Cost (1 + mark-up). D) Price = Cost + (1 + mark-up).
According to the equation of exchange, if the amount of money in an economy multiplied by the velocity of money equals 800 million dollars, then this economy's: a. real GDP equals $800 million
b. nominal GDP equals $800 million. c. real GDP equals $800 million times the price level. d. nominal GDP equals $800 million times the price level. e. price level equals $800.
Which of the following is always true for a perfectly competitive firm?
a. Marginal revenue is below price. b. Marginal revenue exceeds price. c. The market demand curve is a horizontal line. d. Price equals marginal revenue. e. The market supply curve is a horizontal line.
A rightward shift in the demand curve for a product will ordinarily result from
a. a decrease in the advertising budget. b. a decrease in the price of a competing product. c. an increase in consumer income. d. an increase in the price of a complementary good.