Describe the concept of rational ignorance. Discuss a topic that most people are rationally ignorant of or that you believe that people in general are rationally ignorant of.

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Jamar FerryLv2

11 May 2019

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1. Many of the things discussed in these first chapters implied rational behavior by consumers; in fact economics analysis depends on it. Does this application suggest that consumers do not always act rationally? If not, how do we make economic judgments?

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Chapter 4 is entitled 'The Theory of Individual Behavior', and much of the chapter is devoted to the use of indifference analysis to build a framework for demand theory. Indifference analysis goes to great lengths to explain consumer behavior and how consumers make choices between options available to them. The options they face include budget constraints, different preferences for risk, and a multitude of products and services from which to choose. If one steps back and looks at consumer behavior, it seems to be based upon a premise that is not actually stated in our book. That premise is that consumers behave rationally in their consumption expenditures.

Do you believe consumers do behave rationally? Is so, how do you explain impulse buying, buying as a result of advertising or strong sales pitches, buying for purposes of conspicuous consumption, or buying to simply have something bigger and better than someone else? If consumers do not behave rationally, how can the theory in chapter 4 account for the above behavior? Is the theory still valid? If you think consumers do behave rationally, how can rational thinking explain the above behaviors? How do your thoughts impact, if at all, your opinion of the theory espoused in our text?

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c. Utility Concepts: i. Explain the 4 concepts of Utility, Total Utility, Marginal Utility, and Diminishing Marginal Utility. ii. Explain how those 4 concepts relate to a yes or no decision to implement the Keystone Pipeline project. 1. You should be able to explain each of these concepts as they relate to rational behavior. 2. You should be able to discuss the implications of our not always behaving rationally. 3. You should discuss each concept as it relates to the Keystone decision.