Which of the following correctly identifies a characteristic of structural equations?
A. A structural equation should contain equal number of dependent and independent variables.
B. A structural equation should contain equal number of endogenous and exogenous variables.
C. A structural equation should have a behavioral, ceteris paribus interpretation on its own.
D. A structural equation should not contain structural errors.
Answer: C
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What would happen in a free market system when production of a good generates negative externalities?
A) There is a shortage of the good. B) There is a surplus of the good. C) The equilibrium quantity of the good is less than the efficient amount. D) The equilibrium quantity of the good is more than the efficient amount.