What do economists mean by rationality?
Economics studies the choices people make in the face of constraints that limit their options. According to another definition, economics studies the allocation of scarce resources among competing goals. Underlying both definitions is an assumption that people act rationally, with an eye toward attaining objectives they have chosen.
Rationality does not mean people are computers with fingernails. People may not perfectly understand their own preferences. They often do not know how best to overcome the obstacles that stand between them and their goals. Some of their choices are mistaken when viewed in retrospect, and their powers of calculation and foresight are limited. What rationality offers is a place to start the analysis. The math and graphics in economics textbooks are there to help us better understand the logic of rational choice, and they can often help us to avoid some mistakes of purely verbal reasoning. Once we understand theoretically rational outcomes we will be better able to analyze the behavior of people with less perfect minds.
You might also like to view...
Which of the following would shift the saving schedule upward?
A. Consumer expectations of rising prices of products. B. Increased optimism about future incomes. C. A decrease in real interest rates. D. A decrease in wealth.
In the income-expenditure model, firms stand ready to provide all the output that is demanded
Indicate whether the statement is true or false
In the presence of a negative externality generated by producing a good, a competitive market will produce more of that good than is socially optimal
What will be an ideal response?
Which of the five goods, A to E, whose price elasticities of demand are shown in the choices below, is the best candidate to tax if the goal is to acquire maximum tax revenue?
a. good A, with price elasticity of 0.90 b. good B, with price elasticity of 3.40 c. good C, with price elasticity of 1.25 d. good D, with price elasticity of 0.50 e. good E, with price elasticity of 1.00