Explain the economic assumption that "people are rational."
What will be an ideal response?
"People are rational" means that economists assume consumers and firms will use all available information as they act to achieve their goals. Rational individuals weigh the benefits and costs of each action, and they choose an action only if the benefits exceed the costs.
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Laws regulating pollution emissions can change the size of the economic pie
Indicate whether the statement is true or false
Interest rates in the economy have fallen. How will this affect aggregate demand and equilibrium in the short run?
A) Aggregate demand will fall, the equilibrium price level will rise, and the equilibrium level of GDP will fall. B) Aggregate demand will fall, the equilibrium price level will fall, and the equilibrium level of GDP will fall. C) Aggregate demand will rise, the equilibrium price level will fall, and the equilibrium level of GDP will rise. D) Aggregate demand will rise, the equilibrium price level will rise, and the equilibrium level of GDP will rise.
In Figure 5.1, the demand curve that is perfectly elastic is on graph:
A. A. B. B. C. C. D. D.
If private bargaining to resolve an externality is to result in an efficient outcome,
A. the initial assignment of rights must be clear to both parties. B. there must be direct regulation of externalities. C. rights must be protected by liability rules. D. there must be tradable pollution rights.