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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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In a single sentence, contrast microeconomics and macroeconomics. Next, categorize each of the following issues as either a microeconomic issue, a macroeconomic issue, or not an economic issue.
(a) The national unemployment rate.
(b) The decision of a worker to work overtime or not.
(c) A family鈥檚 choice to have a baby.
(d) The rate of growth of the money supply.
(e) The national government鈥檚 budget deficit.
(f) A student鈥檚 allocation of study time across two subjects.
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?
Distinguish between Normative and Positive Economics.
Recently, a bank was trying to decide what fee to charge for 鈥渆xpedited payments鈥濃�攑ayments that the bank would transmit extra-speedily to enable customers to avoid late fees on cable TV bills, electric bills, and the like. To try to determine what fee customers were willing to pay for expedited payments, the bank conducted a survey. It was able to determine that many of the people surveyed already paid fees for expedited payment services that exceeded the maximum fees that they said they were willing to pay. How does the bank鈥檚 finding relate to economists鈥� traditional focus on what people do, rather than what they say they will do?
Why might the rationality assumption explain why even a chicken farmer who has absolutely no humanitarian concern for chickens might seek to maintain very comfortable conditions for the birds?
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