Professor's Economics Students Are Constructing Models for How Gasoline Prices

question 323

Multiple Choice

Professor's economics students are constructing models for how gasoline prices change. Maria's model has very realistic assumptions and is quite complex. Anna's model is less complicated and less realistic. Maria's model correctly predicts gas price increases 5% of the time. Anna's model predicts correctly 15% of the time. On the basis of usefulness or "goodness," Professor will give which student's model the higher grade and why?

• A) Maria's model gets the higher grade because it is more complex.
• B) Anna's model gets the higher grade because it is simpler.
• C) Maria's model gets the higher grade because it is more realistic.
• D) Anna's model gets the higher grade because it predicts accurately more often.

---

Definitions:

Allowance Method

Bases bad debt expense on an estimate of uncollectible accounts.

Bad Debt Expense

An expense reported on the income statement, representing the value of accounts receivable deemed non-collectible.

Accounts Receivable

Amounts owed to a company by customers for goods or services that have been delivered or used but not yet paid for.

Net Income

The residual income of a business following the subtraction of all taxes and costs from the total revenue.