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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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Review Figure, and then state whether each of the following paired observations is on, above, or below the x-axis and on, to the left of, or to the right of the y axis.
a. (-10, 4)
b. (20, -2)
c. (10, 0)
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?
For each of the following items, state whether a direct or an inverse relationship is likely to exist.
(a) The number of hours you study for an exam and your exam score.
(b) The price of pizza and the quantity purchased.
(c) The number of games the university basketball team won last year and the number of season tickets sold this year.
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?
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) To make predictions about how many apps a person will download onto her tablet device, an economist presumes that the individual faces limitations that make it impossible for her to examine every possible choice among relevant apps.
(b) In evaluating the price that an individual will be willing to pay for a given quantity of a particular type of healthcare service, a researcher assumes that the person considers all relevant health care options in pursuit of his own long-term satisfaction with resulting health outcomes.
(c) To determine the amount of time that a person will decide to devote to watching online videos each week, an economist makes the assumption that the individual will feel overwhelmed by the sheer volume of videos available online and will respond by using a rule of thumb.
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