Answer:
Economic models often vary greatly in assumptions and simplifications.
Explanation:
Most models in Classical Economics are based on a lot of generalizations and simplifications, that intend to model the behavior of the situations of the real world but often fail to encompass all the intricacies and complications that even most straightforward situations present. These simplifications help the Economists figure out the mathematical laws that are governing the real world economic systems. Therefore making the economic modeling a simpler process.
Classic economics implies three basic assumptions:
1- People behave rationally in any situation.
2- Firms and individual want to maximize profit and utility
3- People act independently based on available information.
Answer:
An increase in your income causes you to buy more hamburgers.
Explanation:
An increase in your income causes you to buy more hamburgers.
Option "A" is correct because the increase in income exhibits an increase in purchasing power. Moreover, there is a positive relationship between the income the demand for normal goods which means if the income rises, then the demand rises. If the income falls, then demand for goods also falls. Therefore, option "a" is right.
Answer:
a. 16.00%
b. $13.50
Explanation:
a. The computation of the required return is shown below:
Expected rate of return = Risk-free rate of return + Beta × (Market rate of return - Risk-free rate of return)
= 4% + 1.5 × (12% - 4%)
= 4% + 1.5 × 8%
= 4% + 12
= 16.00%
b. Now the stock price is
= Current year dividend ÷ (Required rate of return - growth rate)
= ($1 × 1.08) ÷ (16% - 8%)
= 1.08 ÷ 8%
= $13.50
We simply applied the above formulas
