Your roommate, Serafina, a psychology major, said, "The problem with economics is that it assumes that consumers and firms always make the correct decision. But we know that everyone's human, and we all make mistakes." Do you agree with her comment?
A) Yes, I agree with her. One cannot make predictions about economic behavior because in reality people make incorrect choices in many situations.
B) I disagree with her. Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave rationally, meaning they make the best decisions given their knowledge of the costs and benefits.
C) Yes, I agree with her. Economic theory should allow for irrational behavior so that we can have more reliable predictions.
D) I disagree with her. If we cannot assume that decisions are correct, then we will not be able to examine the moral implications of these decisions.
Answer: B
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A student wrote: "A production quota is inefficient because it results in overproduction
At the quota quantity, marginal social cost is equal to the market price and marginal social benefit is less than the market price, so marginal social cost exceeds marginal social benefit." If you were the instructor, how would you correct this statement?
Natural monopolies:
A. are the only monopolies that are efficient. B. generally earn zero accounting profits due to regulations. C. can capture the lowest production costs possible for the industry. D. are always protected by government policy.
Which of the following cases violates the property of transitivity?
A. A > B, B > C, A > C. B. A ~ B, B ~ C, A ~ C. C. A > B, B > C, C > A. D. None of the statements violates the transitivity property.
Refer to Table 17.2. If the price of output is $2 per unit and we observe the firm hiring four workers, if the firm is maximizing profit, the wage rate must be between ________ and ________.
A. $25; $45 B. $30; $35 C. $45; $60 D. $60; $80