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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Why do you suppose that economists sometimes disagree about whether to classify freelancers who provide paid consulting services to businesses as "workers" or "firms"?
Based on your answer to Problems 1–12, categorize each of the following conclusions as being the result of positive analysis or normative analysis.
(a) A higher minimum wage will reduce employment opportunities for minimum wage workers.
(b) Increasing the earnings of minimum wage employees is desirable, and raising the minimum wage is the best way to accomplish this.
(c) Everyone should enjoy open access to health care at no explicit charge.
(d) Heath care subsidies will increase the consumption of health care.
Maneesha has completed an analysis of the market for prescription medication. She has determined that the policymaker should act to prevent an increase in the price of this drug on the grounds that the mainly elderly consumers of the medication already have spent their lives paying too much for pharmaceuticals. They ought not to have to pay higher prices, Maneesha has concluded, so the government should act to halt any further price increases in the market. Has Maneesha applied positive or normative economic analysis?
Under what circumstances might people appear to use rules of thumb, as suggested by the assumption of bounded rationality, even though they really were behaving in a manner suggested by the rationality assumption?
Which of the following predictions appear(s) to follow from a model based on the assumption that rational, self-interested individuals respond to
incentives?
(a) For every 10 exam points Myrna must earn in order to pass her economics course and meet her graduation requirements, she will study one additional hour for her economics test next week.
(b) A coin toss will best predict Leonardo’s decision about whether to purchase an expensive business suit or an inexpensive casual outfit to wear next week when he interviews for a high-paying job he is seeking.
(c) Celeste, who uses earnings from her regularly scheduled hours of part-time work to pay for her room and board at college, will decide to buy a newly released DVD this week only if she is able to work two additional hours.
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