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:

Producer Surplus

The difference between what producers are willing to sell a good for and the actual market price they receive, representing a measure of producer welfare.

Average Cost

The total cost divided by the quantity produced, indicating the cost per unit of output.

Competitive Industry

An industry characterized by a large number of firms competing against each other, leading to innovation, varied product choices, and reasonable prices for consumers.

Marginal Cost

The cost associated with producing one more unit of a product, reflecting how production costs change with output levels.