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Questions and Answers
According to choice theory, what are the assumptions about individual action?
According to choice theory, what are the assumptions about individual action?
- Individuals have preferences and make self-interested choices (correct)
- Individuals make choices based on rationality
- Individuals have preferences and face constraints
- Individuals make choices based on collective outcomes
What is the main focus of consumer theory?
What is the main focus of consumer theory?
- Defining the principles that guide individual action
- Exploring the consequences of individual action on collective outcomes
- Allocating a given total between different options (correct)
- Analyzing the theorems of welfare economics
Who introduced choice theory?
Who introduced choice theory?
- John Keynes
- Adam Smith (correct)
- Friedrich Hayek
- Karl Marx
What does choice theory say about aggregate social behavior?
What does choice theory say about aggregate social behavior?
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What are the theorems of welfare economics according to choice theory?
What are the theorems of welfare economics according to choice theory?
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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
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