The Assumption of Rational Behavior

question 126

Multiple Choice

The assumption of rational behavior:

• A) offers a perfect framework for how people actually behave.
• B) helps economists explain how people behave in a way that will best achieve their goals.
• C) explains why people voluntarily engage in decisions for which costs exceed benefits.
• D) is best applied to psychology and should not be used in the science of economics.

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Definitions:

Consumer Surplus

The difference between the total amount that consumers are willing and able to pay for a good or service and the total amount they actually do pay.

Trade

The process of purchasing, vending, or trading products and services among individuals, corporations, or nations.

Trade

The exchange of goods, services, or both within and between countries.

Deadweight Loss

An economic inefficiency occurring when a market outcome does not maximize total surplus due to a distortion, like a tax or subsidy.