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Chapter 1: Q 1.4 (page 1)
Explain why economics is a science.
Economics is considered a science because it considers the cause and effect relationship and is based on predictions and assumptions.
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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) To make predictions about how many apps a person will download onto her tablet device, an economist presumes that the individual faces limitations that make it impossible for her to examine every possible choice among relevant apps.
(b) In evaluating the price that an individual will be willing to pay for a given quantity of a particular type of healthcare service, a researcher assumes that the person considers all relevant health care options in pursuit of his own long-term satisfaction with resulting health outcomes.
(c) To determine the amount of time that a person will decide to devote to watching online videos each week, an economist makes the assumption that the individual will feel overwhelmed by the sheer volume of videos available online and will respond by using a rule of thumb.
One of your classmates, Sally, is a hardworking student, serious about her classes, and conscientious about her grades. Sally is also involved, however, in volunteer activities and an extracurricular sport. Is Sally displaying rational behavior? Based on what you read in this chapter, construct an argument supporting the conclusion that she is.
During her years of college, Dominique discovered that her three favorite subjects were astronomy, chemistry, and political science. She chose to major in astronomy because she had seen data indicating that science majors earn higher-than-average wages and because she liked astronomy better than both chemistry and political science. Upon graduation, however, she learned that average wages in chemistry fields were percent higher than average wages earned by astronomers. Did Dominique's behavior violate the rationality assumption?
Identify the three basic economic questions and the two opposing sets of answers.
How do you suppose the higher taxes have affected the incentive for Greek residents to engage in tax avoidance, or legally reduce tax liabilities, including earning less income that is subjected to taxation?
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