What are the five steps by which economists arrive at a useful economic model?
What will be an ideal response?
1. Decide on the assumptions to use in developing the model.
2. Formulate a testable hypothesis.
3. Use economic data to test the hypothesis.
4. Revise the model if it fails to explain the economic data well.
5. Retain the revised model to help answer similar economic questions in the future.
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What would happen in the market for laser eye surgery if insurance companies started to cover a portion of the price of voluntary procedures?
A) Demand and supply will both increase. B) Demand will increase, but this will not shift the supply curve. C) Supply will increase, but this will not shift the demand curve. D) Demand will increase and supply will decrease.
The price of crude oil increased to $100 per barrel in early 2008. What would we expect to see happen to the supply of gasoline, which is produced using crude oil?
A) The supply of gasoline will increase. B) The supply of gasoline will decrease. C) The supply of gasoline will stay the same because the government requires gasoline producers to meet statutory minimum production levels. D) The supply of gasoline will stay the same because of the profit motives of gasoline producers.