An Identity Is an Equation That

question 131

Multiple Choice

An identity is an equation that

• A)describes an equilibrium.
• B)pertains to macroeconomics, not to microeconomics.
• C)must be true by the way the variables in the equation are defined.
• D)involves final goods, not intermediate goods.

---

Definitions:

Hedonic Treadmill

A theory suggesting that people continually seek new levels of stimulation or material goods to maintain happiness, but generally return to a stable level of happiness despite major positive or negative changes.

Prospect Theory

Prospect theory is a behavioral economic theory that describes how people choose between probabilistic alternatives that involve risk, where the probabilities of outcomes are known.

Neoclassical Economics

An economic theory that focuses on how consumer demand and production costs influence price, output, and income distribution in markets.

Behavioral Economics

A field of study that examines how psychological, cognitive, emotional, cultural, and social factors affect the economic decisions of individuals and institutions.