According to Rational Expectations Theory

question 82

Multiple Choice

According to rational expectations theory,

• A) every day is a new day and yesterday's occurrences have no bearing on today's decisions.
• B) when making decisions a person will consider only information based on past experience.
• C) even though a person considers information related to future events as potentially important for decision making,he realizes that such information is unreliable and worthless.
• D) past experience is a good guide for decision making,but so is information related to possible future outcomes.

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Definitions:

Average Total Costs

The total costs of production (fixed and variable costs) divided by the number of units produced, showing the cost per unit.

Pure Monopoly

A market structure in which a single seller controls the entire supply of a product or service, and therefore can manipulate prices and conditions of sale.

Close Substitutes

Products or services that are so similar that a consumer can easily replace one with another, often affecting consumer choice and market competition.

Sole Producer

A market situation where only one supplier exists for a particular good or service, often leading to monopolistic behaviour.