Does the principle of optimization imply that people always make the best choices?
A. Yes, it is a good approximation for the decisions people make.
B. No, because people do not have full information.
C. Yes, because people make perfect calculations.
D. No, because people are irrational.
E. It cannot be tested without more data.
A. Yes, it is a good approximation for the decisions people make.
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The likelihood of successful private solutions to problems caused by externalities depends, in part, upon the number of interested parties. Briefly explain
When an American household purchases a bottle of Italian wine for $100,
a. U.S. consumption does not change, U.S. net exports decrease by $100, and U.S. GDP decreases by $100. b. U.S. consumption does not change, U.S. net exports increase by $100, and U.S. GDP increases by $100. c. U.S. consumption increases by $100, U.S. net exports decrease by $100, and U.S. GDP does not change. d. U.S. consumption increases by $100, U.S. net exports do not change, and U.S. GDP increases by $100.