Economics (7th Edition) (What's New in Economics)
Economics (7th Edition) (What's New in Economics)
7th Edition
ISBN: 9780134738321
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Chapter 1, Problem 1.1.10PA
To determine

Decision regarding drop psychology course.

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When Paul Samuelson switched from physics to economics, Robert Solow is said to have remarked that the average IQ in both disciplines went up. A bystander responded that Solow's claim must be wrong because it implies that the average IQ for academia as a whole (which is a weighted average of the average IQ levels for each discipline) must also have gone up as a result of the switch, which is clearly impossible. Was the bystander right? A) Yes. If the average in both disciplines goes up then the population average must also rise. B) No. There is not enough information about the average IQ for the population. C) Yes. The weights may change so that the population average also increases. D) No. If those in physics had IQs above average and those in economics has IQs below average, then the population average need not have changed.
Daniel Kahneman and the late Amos Tversky are considered to be the founders of modern behavioural economics and finance. In recognition of their work, Kahneman was awarded the Nobel prize in economics in 2002. Reflect on the following points: Are economic agents rational? and What can psychology teach us that will enable us to understand and possibly predict, economic agents’ behaviour? How can “heuristics and biases” have an effect on economic decisions? To what extent is Kahneman’s work relevant to financial decisions?
Suppose you and your brother go out for dinner.  Your brother orders a cheeseburger and fries.  When the food first arrives, you ask your brother if you can have a few fries.  He looks at you like you're crazy, and says, "No!"  Then a few minutes later, after you've both started eating, you ask again, and your brother reluctantly says, "Sure.  Go ahead."  An economist's explanation for your brother's change of heart is most likely to be that your brother's marginal utility from eating additional french fries declines as he eats more of them, so he's more likely to share with you after he's eaten a few.   your brother's total utility increases as he eats more french fries, so he's more likely to share with you after he's eaten a few.   your brother's marginal utility from eating additional french fries increases as he eats more of them, so he's more likely to share with you after he's eaten a few.   your brother's total utility declines as he eats more french fries, so…
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