Economists assume people behave rationally, which means that people
A) never make a mistake.
B) do not intentionally make decisions that make themselves worse off.
C) have the necessary information to always make correct decisions.
D) always understand the consequences of their decisions.
Answer: B
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If the price of pork rinds falls, the substitution effect due to the price change will cause
A) an increase in the quantity of pork rinds demanded. B) a decrease in the quantity of pork rinds demanded. C) an increase in the demand for pork rinds. D) an increase in the demand for corn chips, a substitute for pork rinds.
Suppose that a provider of health insurance is concerned that a policy holder will eat unhealthy foods during the lifetime of their insurance contract. The insurer faces the problem of ________
A) Antediluvian intransigence B) opportunity costs C) moral hazard D) adverse selection