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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What would be the appropriate change in the U.S. degree of plastic-waste cleanliness if the marginal cost of pollution abatement is higher than the associated marginal benefit?
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?
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?
How will the long-run adjustment of Egyptian cotton supply from the elimination of the subsidy likely affect the number of suppliers - that is, Egyptian cotton farmers? Explain.
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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