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) 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.
Explanation to the above answer
It is true that, economic agents behave rationally and they make best decisions given their knowledge of the costs and benefits and also it is true that economics does not study correct or incorrect behaviors
