The Assumption of Rational Behavior

question 73

Multiple Choice

The assumption of rational behavior:

• A) offers a perfect framework for how people actually behave.
• B) helps economists explain about 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.

---

Definitions:

Flood Insurance

A policy that covers property damage and loss caused by flooding.

Utility Function

A utility function represents a consumer's preference for a set of goods and services, showing satisfaction levels for different consumption bundles.

Stock Market

A public market for the trading of company stock and derivatives at an agreed price; it is a key component of the economy.

Day Trader

An investor who buys and sells securities within the same trading day.