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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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.
Centralized command and control prevail throughout a certain nation's economy. What three key economic questions have been addressed in this nation, and what has been the common element of the nation's answers to those questions?
Why might the rationality assumption explain why even a chicken farmer who has absolutely no humanitarian concern for chickens might seek to maintain very comfortable conditions for the birds?
Could it be the case that chicken farmers who have both humanitarian and profit motives for keeping their chickens comfortable nonetheless are fully "self-interested"? Explain.
Does the phrase “unlimited wants and limited resources” apply to both a low-income household and a middle-income household? Can the same phrase be applied to a very high-income household?
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