When you add state fixed effects to a simple regression model for U.S. states over a certain time period, and the regression R2 increases significantly, then it is safe to assume that
A) the included explanatory variables, other than the state fixed effects, are unimportant.
B) state fixed effects account for a large amount of the variation in the data.
C) the coefficients on the other included explanatory variables will not change.
D) time fixed effects are unimportant.
Ans: B) state fixed effects account for a large amount of the variation in the data.
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What will be an ideal response?
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A. transaction costs. B. liquidity. C. risk transfer. D. information asymmetry.
A natural monopoly arises when
A) one firm controls the supply of a unique resource. B) a firm has many small firms that it can control. C) there are firms which act together as a monopoly. D) the long-run average cost curve slopes downward as it crosses the demand curve. E) one firm naturally convinces the government to limit competition in the market.
The price effect is equal to the
A) substitution effect. B) substitution effect plus the income effect. C) marginal rate of substitution minus relative prices. D) substitution effect minus the income effect.