Question;1// Discussion 1A fundamental assumption for economic analysis is that economic agents, be it an individual, a household or a firm/business, tend to make choices and select alternatives rationally. The rational economic choice (decision) implies thatpeople are driven by the rational pursuit of self-interest, and engaged in economic decisionsto maximize this self-interest.Byrational economic choice, economists mean that people try to make the best choice they can, given the available resources at their disposals (money, time, etc.) and information.Self-interestis when individuals make economic decisions that are in their own best interest. On the other hand, social interestis when choices are made that benefit society as a whole. Economists argue that social interest can be attained by individual decision makers acting in their own self-interest. This process is what Adam Smith called theinvisible hand, which has been the foundation of the market economy.Create an example to demonstrate how an individual or firm acting out of self-interest to maximize profits by offering goods or services in economic markets benefit consumers ? even if they do not care about them. In other words, how does self-interest help achieve society?s economic goals?What is the relationship between self-interest and social interest in the economic decision (economic choice) process? Is there a conflict between the two in the economic world?2// Discussion 2:There are two major kinds of government interventions in markets: price controls and quantity controls. The government intervenes to regulate prices by imposing price controls, which are legal restrictions on how high or low a market price may go. Price ceiling is the maximum price sellers are allowed to charge for a good or service, whereas price floor is the minimum price buyers are required to pay for a good or service.Price and quantity controls may have adverse impacts on productive and allocative (marketing) efficiency. However, price and quantity controls are used despite their well-known problems.Based on the Reading in Chapter 3 on price ceiling and price floor, explain the impacts of the following price control measures.What would happen to the supply and demand of Super Bowl tickets if the government mandated that no more than $20 a ticket could be charged?What would happen if a law passed dictating that kindergarten teachers could make no less than $100,000 per year?3// Discussion 3:The concept of rational action is a frontier of economic theory. Accordingly, traditional economics holds that humans, as rational beings, make rational economic choices to maximize their economic welfare as pursuit of self-interests. Thus, economics assumes that human economic behavior reflects rational self-interest.Some economists argue that rationality has its bounds because many human behaviors do not appear to be rational, as traditional economics assume most human behavior is rational. Economist Herbert Simon developed the concept of ?bounded rationality,? which means that people are as rational as possible (seek to act in their own best interests) given their limitations. Bounded rationality is based on the premise that an individual?s rationality is limited by both his cognitive ability and the economic environment. Thus an economic agent behaves in a manner that is nearly optimal with respect to its goals as its resources will allow.Therefore, some economists claim that bounded rationality better describes economic agent?s behaviors than optimal rationality approach. This is due to the fact that bounded rationality recognizes that it is impossible to comprehend and analyze all of the potentially relevant information in making economic choices. The only possible way of coping with the complexity of the world is to develop techniques, habits, and standard operating procedures to facilitate the decision making process. The debate still goes on the issue. Do people make rational decisions in economics? What are the factors that lead to bounded rationality? What leads to irrational economic decisions?With this in mind, pick a behavior that appears irrational to other people but has rational components for the person doing it. Then provide a thorough explanation for your classmates.
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