The Concept of Rational Choice & Price Control and Their Impacts

Portion 1: Minimum 350 Words (The Concept of Rational Choice

• Give an example illustrating how a firm acting out of self-interest to maximize its profits by offering goods or services in economic markets benefits consumers – even if it does not care about them. In other words, how does self-interest help achieve society’s economic goals?
• Give an example illustrating how a firm acting out of self-interest can have deleterious effects on consumers. Why might consumers allow firms to behave in this way? Are there ways in which a firm acting out of self-interest might be harmful to society?

• 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?
• Do people always make rational decisions? What are the factors that lead to bounded rationality? What are the factors that lead to irrational economic decisions?

Portion 2: Minimum 350 Words (Price Control and their Impacts

• 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 to supply and demand if a law passed dictating that kindergarten teachers could make no less than $100,000 per year?

The concept of rational choice is a frontier of economic theory. A fundamental assumption for economic analysis is that economic agents, a household, and a firm, tend to make the best choices from among viable alternatives, given the available resources at their disposal (money, time, etc.) and information. The rational economic choice implies that people are driven by the rational pursuit of self-interest, and engaged in economic decisions to maximize this rational selfinterest. Self-interest is an individual’s economic decisions that are made to fulfill the individual’s best interests. On the other hand, social interest indicates choices that are made to 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 the invisible hand, which is the foundation of the theory of the market economy. • Give an example illustrating how a firm acting out of self-interest to maximize its profits by offering goods or services in economic markets benefits consumers – even if it does not care about them. In other words, how does self-interest help achieve society’s economic goals? • Give an example illustrating how a firm acting out of self-interest can have deleterious effects on consumers. Why might consumers allow firms to behave in this way? Are there ways in which a firm acting out of self-interest might be harmful to society? • 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? • Do people always make rational decisions? What are the factors that lead to bounded rationality? What are the factors that lead to irrational economic decisions? *****350 WORD MINIMUM***** *****PLEASE LIST REFERENCES***** Price Controls and Their Impacts One of the major types of government intervention in markets is price 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 for certain products. 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. These price controls may have adverse impacts on productive and allocative (marketing) efficiency. However, price 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 to supply and demand if a law passed dictating that kindergarten teachers could make no less than $100,000 per year? *****350 WORD MINIMUM***** *****PLEASE LIST REFERENCES*