What do economists mean by ...

[vHAUNG6011]

What do economists mean by rationality?

Question 2

Which of these is true of the law of diminishing marginal returns?
 a. It is a long run phenomena where all inputs are variable.
  b. It applies mostly to the short run because some inputs remain fixed.
  c. It is a long run phenomena experienced under monopoly.
  d. It applies to fixed inputs in the long run.
  e. It applies to fixed inputs in the short run.

[mbcrismon]

Answer to Question 1

Economics studies the choices people make in the face of constraints that limit their options. According to another definition, economics studies the allocation of scarce resources among competing goals. Underlying both definitions is an assumption that people act rationally, with an eye toward attaining objectives they have chosen.

Rationality does not mean people are computers with fingernails. People may not perfectly understand their own preferences. They often do not know how best to overcome the obstacles that stand between them and their goals. Some of their choices are mistaken when viewed in retrospect, and their powers of calculation and foresight are limited. What rationality offers is a place to start the analysis. The math and graphics in economics textbooks are there to help us better understand the logic of rational choice, and they can often help us to avoid some mistakes of purely verbal reasoning. Once we understand theoretically rational outcomes we will be better able to analyze the behavior of people with less perfect minds.

Answer to Question 2

b