Question

Professor Adams decides to teach his 10 students how the stock market works.​ Therefore, he plans to develop a virtual stock market for the class that includes five different shares. Students are given​ $50 each to invest in any of the five shares. This exercise helps the students understand the overall stock market investing process.

Which of the following statements is true for the above​ case?

A. It is a model.​ However, its predictions cannot be checked with empirical evidence.

B. It is a​ model, and its predictions can be checked with empirical evidence.

C. It is not a​ model, though its predictions can be checked with empirical evidence.

D. It is not a​ model, and its predictions cannot be checked with empirical evidence.

In the virtual model developed by​ Professor, when demand for a particular share consists of​ 10% of all student​ investors, the share price is ​$10. When demand increases to​ 30% of the student​ investors, the price increases to ​$13. ​

However, in an actual stock​ market, it is generally​ noticed, when demand consists of​ 10% of all​ investors, a share price of ​$130 increases to ​$220 when demand for the share is increases to​ 30% of the total investors. ​

Therefore, by testing the accuracy of the model and the real​ data, we find that the share prices in the virtual stock market increases by ___% compared to___​% increase in actual stock market. ​(Round your answer to the nearest percent​.) ​

Therefore, we conclude that the model is ___(accurate inaccurate) compared to the actual data.

Which of the following are true about a​ model? ​(Check all that apply​.)

A. It is not always the exact replica of the data.

B. The outcomes of the model are used in comparison with the actual data.

C. It makes hypotheses on empirical evidence.

D. It is a simplified description of a theory.

Answer 1

1. Option A. It is a model. However it's prediction cannot be checked with empirical evidence. All Model goes with some logics or theories and process the data to find the final outcome to compare with the actual.

2. share prices in Virtual stock Market Increases by 30%[{13-10)/10] compared to 69.23%[(220-130)/130] increase in actual stock Market.

3. All the Options apply to a model. A model is a way to understand the behaviour of the actual based on some great theories, therefore it cannot be always exact replica of the data. The result of the model is then compared with the actual data to find out the relationship between these two to take benefits from the actual by analysing the model.

Note: In case of any clarification, please do comment. Thank you.