Carefully distinguish between an economic theory and economic model
An economic theory is a deliberate simplification or abstraction of factual relationships that attempts to explain how those relationships work. It is an explanation of the mechanism behind observed phenomena. An economic model is a representation of a theory or a part of a theory used to gain insight into cause and effect. A theory can give rise to a large number of models. Thus, a theory is logically prior to a model, and will ordinarily be more inclusive than a model.
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Maria Brown is a young tennis player who has shot to fame after defeating Sarah Knowels in three consecutive matches. In the fourth match, Sarah decided to serve left each time. Is this an optimal winning strategy for Sarah?
What will be an ideal response?
Refer to the diagram. Other things equal, this economy will achieve the most rapid rate of growth if:
A. the ratio of capital to consumer goods is minimized.
B. it chooses point C.
C. it chooses point B.
D. it chooses point A.