Asked by David Frigoletto on Jul 16, 2024
Verified
Based on the assumptions of traditional economic theory,
A) we conclude that it is not possible to derive demand curves for consumers or cost curves for producers.
B) we construct a theory of consumer and producer behavior described by demand and cost curves, which assume that consumers and producers make decisions based on all available information.
C) we build theories that work, even when we assume a lack of perfect knowledge on the part of consumers and producers.
D) we build demand and cost curves that may behave in unpredictable ways, because we can't assume that consumers and producers make decisions based on all available information.
Traditional Economic Theory
A framework that explains economic decisions and behaviors based on the assumption that agents are rational and seek to maximize utility or profit.
Demand Curves
Graphs showing the relationship between the price of a good and the quantity demanded by consumers at those prices.
Cost Curves
Graphical representations of the various costs associated with producing different quantities of a good, including average and marginal costs.
- Recognize the fundamental presuppositions that form the basis of classical economic theory regarding the actions of consumers and producers.
Verified Answer
TB
Tessa BanksJul 20, 2024
Final Answer :
B
Explanation :
Traditional economic theory assumes that consumers and producers make decisions based on all available information. Therefore, demand and cost curves can be constructed to represent the behavior of consumers and producers. This is a fundamental concept in microeconomics.
Learning Objectives
- Recognize the fundamental presuppositions that form the basis of classical economic theory regarding the actions of consumers and producers.