Question

a. Which of the following is NOT an assumption that Neoclassical economics makes about people?

• People are as good at assessing future options as they are in assessing current ones.

• People care deeply about fairness and are often generous.

• People are driven by the pursuit of maximum satisfaction.

• People's tastes and preferences are stable and definite.

b. Neoclassical economic models make simplifying assumptions about people's rationality and preferences for all of the following reasons EXCEPT

• they make the models mathematically elegant.

• they allow the models to generate quite precise predictions of behavior.

• they allow the models to generate quite accurate predictions of behavior.

• they allow the models to be conveniently solved mathematically.

c. Behavioral economics assumes that people are

• always focusing on their self-interest and maximizing their own net benefits.

• definitely aware of their preferences and are consistent in their preferences.

• eager to and capable of estimating the benefits and costs of their decisions.

• prone to falling prey to temptation because they lack sufficient willpower.

d. Neoclassical economics and behavioral economics disagree on all of the following assumptions EXCEPT

• the strength of people's willpower.

• determinants of prices.

• the stability of people's preferences.

Answer 1

(a) People care deeply about fairness and often generous is not an assumption that Neoclassical economics about people. Hence, option(B) is correct.

(b) Neoclassical models make simplifying assumptions about people's rationality and preferences for all of the following reasons except they allow the models to generate quite accurate predictions of behavior. Hence,option(C) is correct.

(c) Behavioral economics assumes that people are prone to falling prey to temptation because they lack sufficient willpower.Hence, option(D) is correct.

(d) Neoclassical economics and behavioral economics disagree on all of the following assumptions except determinant of prices.Hence, option(B) is correct.