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Chapter 1: Q. d - For Critical Thinking (page 8)
In what way do small talk and gossip represent the use of simplifying assumptions?
Small talk and gossips make the work smaller and are used to simplify assumptions.
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Consider the following statements, based on a positive economic analysis that assumes that all other things remain constant. For each, list one other thing that might change and thus offset the outcome stated.
(a) Increased demand for laptop computers will drive up their price.
(b) Falling gasoline prices will result in additional vacation travel.
(c) A reduction of income tax rates will result in more people working.
Write a sentence contrasting positive and normative economic analysis.
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.
Explain, in your own words, the rationality assumption, and contrast it with the assumption of bounded rationality proposed by adherents of behavioral economics.
Calculate the slope of the function you graphed in Problem A-5.
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