Chapter 1: Q 8 (page 15)
Why does the assumption of bounded rationality suggest that people might use rules of thumb to guide their decision-making instead of considering every possible choice available to them?
People simply choose the decision rather than analyzing every single choice they have.
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State whether each of the following functions specifies a direct or an inverse relationship.
a. y = 5x
b. y = 10 - 2x
c. y = 3 + x
d. y = −3x
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?
Identify the three basic economic questions and the two opposing sets of answers.
Explain, in your own words, the rationality assumption, and contrast it with the assumption of bounded rationality proposed by adherents of behavioral economics.
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?
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