Chapter 1: Q 2 (page 13)
Under the rationality assumption, could a woman potentially take into account her family's welfare as well as her own when considering having another child? Explain your reasoning.
Yes, it can be considered as the rationality assumption takes into consideration every possible choice.
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Explain which is the independent variable and which is the dependent variable for each of the following examples.
(a) Once you determine the price of a notebook at the college bookstore, you will decide how many notebooks to buy.
(b) You will decide how many credit hours to register for this semester once the university tells you how many work-study hours you will be assigned.
(c) You anticipate earning a higher grade on your next economics exam because you studied more hours in the weeks preceding the exam.
Discuss the difference between microeconomics and macroeconomics.
Define economics. Explain briefly how the economic way of thinking—in terms of rational, self-interested people responding to incentives—relates to each of the following situations.
(a) A student deciding whether to purchase a textbook for a particular class.
(b) Government officials seeking more funding for mass transit through higher taxes.
(c) A municipality taxing hotel guests to obtain funding for a new sports stadium.
Sebastian is a financial analyst who is convinced that his clients do not always make choices that are consistent with their long-term objectives. He has also determined that his clients do not consider every relevant choice and often fail to act in their own self-interest. Does Sebastian perceive that his clients' behavior accords with the rationality assumption or the assumption of bounded rationality?
Explain, in your own words, the rationality assumption, and contrast it with the assumption of bounded rationality proposed by adherents of behavioral economics.
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