Author Question: The assumption of rationality in economics implies that: a. people perfectly understand their own ... (Read 51 times)

anjilletteb · **on:** Jun 30, 2018

The assumption of rationality in economics implies that:
a. people perfectly understand their own preferences.
b. people can overcome economic obstacles in the best possible way.
c. people can make accurate calculations and they have a perfect foresight.
d. people make choices with an eye toward attaining objectives they have chosen.

Question 2

In labor markets, a change in the wage rate has both an income and a substitution effect. An increase in wages causes an increase in real income but at the same time it increases the relative price of leisure for the worker. If an increase in wage rate causes an individual to work less, _____.
a. the income effect dominates the substitution effect
b. the substitution effect dominates the income effect
c. the substitution and income effects cancel each other out
d. then leisure will be referred to as an inferior good
e. the increase in wage rates will cause an increase in the supply of labor