Explain what economists mean when they apply the rationality assumption

What will be an ideal response?


The rationality assumption means that people do not intentionally make themselves worse off. It does not deal with the interior reasoning of a person or the psychology of a person. Instead, rationality applies to the way people actually behave in a world of scarcity.

Economics

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Refer to the figure below. Assume demand remains unchanged at D1. If supply shifts from S2 to S1, then the equilibrium price will ________ and the equilibrium quantity will ________. 

A. rise; rise B. rise; fall C. fall; fall D. fall; rise

Economics

Everything else held constant, a decrease in wealth

A) increases the demand for stocks. B) increases the demand for bonds. C) reduces the demand for silver. D) increases the demand for gold.

Economics

An increase in the price of a resource would cause: a. producers to substitute other inputs for the resource

b. consumers to substitute other products for goods that increase in price as the result of the higher resource price. c. an increase in the demand for products that use the resource intensely. d. both (a) and (b) to occur.

Economics

Assume the supply curve for cigars is a typical, upward-sloping straight line, and the demand curve for cigars is a typical, downward-sloping straight line. Suppose the equilibrium quantity in the market for cigars is 1,000 per month when there is no tax. Then a tax of $0.50 per cigar is imposed. The effective price paid by buyers increases from $1.50 to $1.90 and the effective price received by

sellers falls from $1.50 to $1.40 . The government's tax revenue amounts to $475 per month. Which of the following statements is correct? a. The demand for cigars is less elastic than the supply of cigars. b. The tax causes a decrease in consumer surplus of $390 and a decrease in producer surplus of $97.50. c. The deadweight loss of the tax is $12.50. d. All of the above are correct.

Economics