What is an economic theory or model? What constitutes a "good" economic theory or model?
An economic theory is a simplified version of reality. It is a general statement about the causal relationship between economic phenomena based on facts. A truly "good" theory will predict well, explain economic behavior, indicate to what extent the predicted outcome is expected to occur, and indicate how long it will take for the predicted outcome to be observed.
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The only two ways of dealing with the principal agent problem are the use of long-term contracts and monitoring
Indicate whether the statement is true or false
Figure 4-2
Given the demand and supply conditions shown in , if the government imposes a price ceiling of a, indicate the quantity consumers would like to buy and the amount producers would be willing to supply.
a.
Consumers would want to buy t; producers would be willing to sell r.
b.
Consumers would want to buy r; producers would be willing to sell t.
c.
Consumers would want to buy t; producers would be willing to sell s.
d.
Consumers would want to buy s; producers would be willing to sell s.