Sara looks into her closet and discovers a pair of like-new shoes she no longer wears because they are out of fashion. From the economist's perspective, was Sara behaving rationally when she bought those shoes?
A) No. If any of a person's decisions have poor results, that person is irrational.
B) Yes, Sara didn't buy those shoes when they were out of fashion.
C) No. The rationality assumption states that rational people never make mistakes.
D) It's not clear because psychology, not economics, deals with the rationality assumption.
Answer: B
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In the above figure, Reggie's budget line rotates outward from BL1 to BL2. He initially consumes at point A. If his new consumption bundle is at point B, this implies that kiwi fruit and mangoes are
A) both lower in price. B) both inferior goods. C) neither substitutes nor complements. D) None of the above answers is correct.
In a principal-agent problem, if the contract used leads to the maximum of the principal's and agent's combined value (profits, payoffs), we can say that this contract features
A) inefficiency in production, since only the principal's profits should be maximized. B) inefficiency in production, since only the agent's payoffs should be maximized. C) efficiency in production. D) inefficiency in production, since the agent's payoffs should be maximized and the principal's profits should be minimized.
One way to solve the problems caused by information asymmetry is:
A. screening. B. signaling. C. building a reputation. D. All of these are solutions to information asymmetry.
Which type of unemployment contributes to the natural rate of unemployment?
A. Real-wage unemployment B. Cyclical unemployment C. Unemployment of government workers. D. All of these contribute to the natural rate.