Business, 24.01.2020 19:31, luis3863

Consider the following statement: "the problem with economics is that it assumes that consumers and firms always make the correct decisions. but we know that everyone makes mistakes." what is the most correct response to this statement?

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Economists do not assume that consumers and firms always make correct decisions, instead they assume that consumers and firms make rational decisions

Explanation:

This assumption that firms and consumers make rational decision is based on the economic rationality principle. The principle theorizes that people will usually consider actions, decisions and options based on logical thinking rather than other subjective elements such as morals, psychology and emotion. As a result of this principle economists assume that people will always make rational decisions.

The meaning of this is that consumers and firms would usually weigh the pros and cons of an issue before taking a decision and as described in the correct statement, rational decisions are logical decisions they do not necessarily mean they are correct decisions.

A consumer can make a logical decision to buy a product based on information made available but this may be a wrong decision because the information is misleading or wrong. It is a logical but incorrect decision.

answered: Guest

The business cycle is the periodic but irregular up-and-down movement in economic activity, measured by fluctuations in real gross domestic product (gdp) and other macroeconomic variables. a business cycle is typically characterized by four phases—recession, recovery, growth, and decline—that repeat themselves over time. economists note, however, that complete business cycles vary in length. the duration of business cycles can be anywhere from about two to twelve years, with most cycles averaging six years in length. some business analysts use the business cycle model and terminology to study and explain fluctuations in business inventory and other individual elements of corporate operations. but the term "business cycle" is still primarily associated with larger (industry-wide, regional, national, or even international) business trends.

answered: Guest

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Consider the following statement: "the problem with economics is that it assumes that consumers and...