In General, Rational Decision Making Requires One to Choose the Actions

question 63

Multiple Choice

In general, rational decision making requires one to choose the actions that yield the:

• A) largest total benefits.
• B) smallest total costs.
• C) smallest net benefits.
• D) largest economic surpluses.

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Definitions:

Derived Demand

The demand for a resource that depends on the demand for the products it helps to produce.

Stock Options

Financial derivatives that grant the holder the right, but not the obligation, to buy or sell a stock at a specified price within a certain time frame.

Principal-Agent Problem

(1) At a firm, a conflict of interest that occurs when agents (workers or managers) pursue their own objectives to the detriment of the principals’ (stockholders’) goals. (2) In public choice theory, a conflict of interest that arises when elected officials (who are the agents of the people) pursue policies that are in their own interests rather than policies that would be in the better interests of the public (the principals).

Profit Sharing Plans

A company program that gives employees a share in the profits of the company.