Assume that an analyst at a leading business daily observes an increase in productivity across industries which announced healthy annual bonus for their employees. This leads him to conclude that productivity is directly related to the incentive scheme followed by companies. The analyst however ignored the increase in capital per worker ratio and other technological developments in these companies which also affected productivity. This error in reasoning is related to:
a. bounded rationality.
b. selection bias.
c. representative heuristics.
d. availability heuristics.
Question 2
If a consumer purchases only two goods, X and Y, and if (MUx / Px) = (MUy / Py), then the consumer cannot reallocate her expenditures on X and Y to increase her utility unless she has more money to spend.
a. True
b. False
Indicate whether the statement is true or false
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