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Chapter 27: Q. c- For Critical Thinking (page 611)

Why do you suppose that a growing number of behavioral economists are calling for adoption of more pragmatic approaches to formulating regulations? Explain briefly.

Short Answer

Expert verified
  • The study and summarization of economic decision-making is known as behavioral economics.
  • The idea that thought's purpose is to describe, depict, or mirror reality is rejected by pragmatism.

Step by step solution

01

Introduction.

  • Behavioral economic consultants use psychology and market research to understand their clients' needs and develop unique business plans and solutions.
  • As a consultant, you could specialize in a field such as health care or education and work independently or as part of a private firm.
02

Pragmatic approaches.

  • Pragmatism is a philosophical school that emerged in the United States around the year 1870.
  • Pragmatism rejects the notion that thought's function is to describe, represent, or mirror reality.
  • Pragmatists, on the other hand, regard thought as an instrument or tool for prediction, problem solving, and action.
03

Main ideas to approach Behavioral economics.

  • The study and description of economic decision-making is known as behavioral economics.
  • Due to bounded rationality, limited self-control, and social preferences, actual human behavior, according to its theories, is less rational, stable, and selfish than traditional normative theory suggests (see also homo economics).

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Most popular questions from this chapter

Why do you suppose that the U.S. Transportation Department has been considering new regulations mandating that states construct parking facilities for trucks?

A firm that sells both Internet-security software and computer antivirus software will sell the antivirus software as a stand-alone product. It will only sell the Internet-security software to consumers in a combined package that also includes the antivirus software. What is this business practice called?

Consider the following fictitious sales data (in thousands of dollars) for both e-books and physical books. Firms have numbers instead of names, and Firm 1generates only e-book sales. Suppose that antitrust authorities' initial evaluation of whether a single firm may possess "monopoly power" is whether its share of sales in the relevant market exceeds 70percent.

a. Suppose that the antitrust authorities determine that selling physical books and e-book selling are individually separate relevant markets. Does an initial evaluation suggest that any single firm has monopoly power, as defined by the antitrust authorities?

b. Suppose that in fact there is really only a single book industry, in which firms compete in selling both physical books and e-books. According to the antitrust authorities' initial test of the potential for monopoly power, is there actually cause for concern?

The table below depicts the cost and demand structure a natural monopoly faces.

a. Calculate total revenues, marginal revenue, and marginal cost at each output level. If this firm is allowed to operate as a monopolist, what will be the quantity produced and the price charged by the firm? What will be the amount of monopoly profit? [Hint: Recall that marginal revenue equals the change in total revenues (P×Q)from each additional unit and that marginal cost equals the change in total costs from each additional unit.]

b. If regulators require the firm to practice marginal cost pricing, what quantity will it produce, and what price will it charge? What is the firm's profit under this regulatory framework? [Hint: Recall that average total cost equals total cost divided by quantity and that profits equal (P-ATC)×Q.].

c. If regulators require the firm to practice average cost pricing, what quantity will it produce, and what price will it charge? What is the firm's profit under this regulatory framework?

A local cable company, the sole provider of cable television service, is regulated by the municipal government. The owner of the company claims that she is normally opposed to regulation by government, but asserts that regulation is necessary because local residents would not want a large number of different cables crisscrossing the city. Why do you think the owner is defending regulation by the city?
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