5 Questions
According to choice theory, what are the assumptions about individual action?
Individuals have preferences and make self-interested choices
What is the main focus of consumer theory?
Allocating a given total between different options
Who introduced choice theory?
Adam Smith
What does choice theory say about aggregate social behavior?
It results from self-interested choices and constraints individuals face
What are the theorems of welfare economics according to choice theory?
Any Pareto efficient outcome can be reached as a decentralised set of optimization problems
Study Notes
Choice Theory
- Assumptions about individual action:
- Individuals act rationally to maximize their satisfaction or happiness
- Choices are made based on preferences and resources
- Individuals are responsible for their own choices and actions
Consumer Theory
- Main focus:
- Understanding how consumers make decisions about what goods and services to buy
- Analyzing the factors that influence consumer behavior
Origin of Choice Theory
- Introduced by:
- Dr. William Glasser, an American psychiatrist
Aggregate Social Behavior
- According to choice theory:
- Aggregate social behavior is the result of individual choices and actions
- There is no collective or group behavior, only individual behaviors
Theorems of Welfare Economics
- According to choice theory:
- The first theorem states that a competitive equilibrium is Pareto optimal
- The second theorem states that any Pareto optimal allocation can be achieved through a competitive equilibrium
Test your knowledge on choice theory and rational choice theory with this quiz! Learn about the principles that guide individual actions and the impact they have on collective outcomes. Explore concepts such as rationality, self-interest, and aggregate social behavior in this insightful quiz.
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