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Chapter 1: Q 9 (page 15)
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?
Under the situations of change in the environment.
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Explain why economics is a science.
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.
Suppose that the government has raised by $10 a per-carat tax rate it imposes on diamonds in an effort to influence the production of these particular goods by each of the firms that produce them and purchases by individual consumers. Would we apply microeconomic or macroeconomic analysis to analyze this policy action?
Define economics. Explain briefly how the economic way of thinking鈥攊n terms of rational, self-interested people responding to incentives鈥攔elates to each of the following situations.
(a) A student deciding whether to purchase a textbook for a particular class.
(b) Government officials seeking more funding for mass transit through higher taxes.
(c) A municipality taxing hotel guests to obtain funding for a new sports stadium.
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.
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