The Ultimate Purpose of an Economic Model Is to

question 2

Multiple Choice

The ultimate purpose of an economic model is to

• A) explain reality as completely as possible.
• B) establish assumptions that closely resemble reality.
• C) help us to understand economic behaviour.
• D) guide government policy decisions.

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Definitions:

Profit

The financial gain achieved when the revenue from business activities exceeds the expenses, costs, and taxes needed to sustain the activity.

Production Function

A mathematical expression that describes the relationship between input factors of production (like labor and capital) and the output of goods or services.

Labor

Labor refers to the human effort, both physical and mental, used in the production of goods and services.

Output

The quantity of goods or services produced in a given time period by a firm, industry, or economy.