Carefully distinguish between an economic theory and economic model
An economic theory is a deliberate simplification or abstraction of factual relationships that attempts to explain how those relationships work. It is an explanation of the mechanism behind observed phenomena. An economic model is a representation of a theory or a part of a theory used to gain insight into cause and effect. A theory can give rise to a large number of models. Thus, a theory is logically prior to a model, and will ordinarily be more inclusive than a model.
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If the Fed tries to lower the unemployment rate so it is lower than the natural unemployment rate, in the long run the SRPC ________ and the LRPC ________
A) shifts downward; shifts leftward B) does not change; shifts rightward C) shifts upward; does not change D) shifts downward; does not change E) does not change; does not change
Ricardo buys cola and popcorn. Cola sells for $0.50 a can and popcorn sells for $1 per bag. He is in consumer equilibrium. The price of a cola jumps to $1 per can. In his new consumer equilibrium, Ricardo's
A) marginal utility of cola will be equal to his marginal utility of popcorn. B) marginal utility per dollar spent will be 2. C) total utility will be higher. D) marginal utility of cola will decrease.
In the above figure, if D2 is the demand curve, then a price of P3 would result in
A) a shortage of Q3 - Q1. B) a shortage of Q4 - Q3. C) a surplus of Q3 - Q1. D) a surplus of Q4 - Q0.
In the long run, more costs become fixed
Answer the following statement true (T) or false (F)