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Chapter 1: Q 1.2 (page 1)
Identify the three basic economic questions and the two opposing sets of answers.
The three questions are,
The two opposing sets of answers are,
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Explain, in your own words, the rationality assumption, and contrast it with the assumption of bounded rationality proposed by adherents of behavioral economics.
Suppose that the government has raised by $10 a per-carat tax rate it imposes on diamonds in an effort to influence the production of these particular goods by each of the firms that produce them and purchases by individual consumers. Would we apply microeconomic or macroeconomic analysis to analyze this policy action?
For each of the following items, state whether a direct or an inverse relationship is likely to exist.
(a) The number of hours you study for an exam and your exam score.
(b) The price of pizza and the quantity purchased.
(c) The number of games the university basketball team won last year and the number of season tickets sold this year.
For each of the following approaches that an economist might follow in examining a decision-making process, identify whether the approach relies on the rationality assumption or on the assumption of bounded rationality:
(a) An economic study of the number of online searches that individuals conduct before selecting a particular item to purchase online presumes that people are interested only in their own satisfaction, pursue their ultimate objectives, and consider every relevant option.
(b) An economist seeking to predict the effect that an increase in a state's sales tax rate will have on consumers' purchases of goods and services resumes that people are limited in their ability to process information about how the sales-tax-rate increase will influence the after-tax prices those consumers will pay.
(c) To evaluate the impact of an increase in the range of choices that an individual confronts when deciding among devices for accessing the Internet, an economic researcher makes the assumption that the individual is unable to take into account every new Internet-access option available to her.
Why do you suppose that economists sometimes disagree about whether to classify freelancers who provide paid consulting services to businesses as "workers" or "firms"?
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