Economic Models Must

question 77

Multiple Choice

Economic models must:

• A) be completely realistic to be useful.
• B) include all relationships that exist in the relevant thing to be modeled.
• C) completely represent the real world.
• D) rely on the ceteris paribus assumption.

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Definitions:

Fixed Costs

Expenses that do not change with the level of production or sales, examples include rent, salaries, and insurance premiums.

Variable Cost

Expenses that change in proportion to the activity or volume of business, such as materials, labor, and transaction fees.

Depreciation Expense

An accounting method of allocating the cost of a tangible asset over its useful life to represent wear and tear over time.

Variable Costs

Expenses that directly fluctuate according to the volume of production or sales.