What Do We Assume About Households and Firms

question 68

Multiple Choice

What do we assume about households and firms?

• A) They act irrationally.
• B) They do what the government tells them to do.
• C) They look after each other.
• D) They optimize.

Recognize how game theory concepts like tit-for-tat apply to strategic decision-making.

Understand the relationship between market structure and innovation.

Understand the concept of oligopolies and their impact on technological advances.

Calculate and understand the significance of the Herfindahl-Hirschman Index (HHI) in measuring industry concentration.

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Definitions:

CPI

A tool for examining the average prices consumers pay for a mix of services and goods, such as healthcare, transportation, and food, the Consumer Price Index calculates this using a weighted average approach.

Deflation

A decrease in the general price level of goods and services, often indicating an economic downturn.

CPI

The Consumer Price Index represents a metric that assesses the aggregate weighted cost of a variety of consumer products and amenities, encompassing areas like transportation, healthcare, and food.

Inflation

The climb in the general pricing landscape for goods and services, depleting the power of procurement.