In Constructing Models, Economists

question 387

Multiple Choice

In constructing models, economists

• A) make simplifying assumptions.
• B) include all available information.
• C) must use mathematical equations.
• D) attempt to duplicate the real world.

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Definitions:

External Benefits

refer to positive effects of a transaction or activity on third parties who are not directly involved in the transaction.

Economic Efficiency

A situation in which resources are optimally allocated to serve each individual or entity in the best way while minimizing waste and inefficiency.

Market

A system or an environment where buyers and sellers interact to trade goods, services, or financial instruments.

Free-rider Problem

A situation where individuals consume goods or services without paying for them, which typically occurs with non-excludable and non-rival public goods.