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Briefly describe the theory of rational ignorance.
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- Explain Economic and Social DisorderIn Wheelan's Naked Economics, and according the the chapter on "Economics of Information," which of the below statements correctly captures why students pay thousands of dollars to get into highly selective universities such as Harvard? Group of answer choices Students who graduate from Harvard University are significantly brighter and better educated than those who do not. Students engage in irrational behavior when they spend thousands of dollars on tuition and college expenses to study at highly selective universities such as Harvard. There is little value to spending huge amounts of money to study at a highly selective university such as Harvard, because the university from which a student graduates has little (if any) impact upon the student's job or income prospects. The choice of university signals information. Employers assume in general that the selectivity of universities ensures quality of education, and therefore graduates of Harvard and other selective universities…Do you think Pareto Efficiency is enough to explain welfare economics?
- is the provided Edgeworth box a good example of second-welfare economics theorem.Some economists maintain that the returns to additional years of education is actually quite small but that there is a substantial “sheepskin” effect whereby one receives a higher salary with the successful completion of degrees or the earning of diplomas (i.e., sheepskins).Explain how the sheepskin effect is analogous to a signaling model.To ensure safety and efficacy, the Food and Drug Administration regulates the medicines that pharmacies are allowed to sell in the US. Sometimes this means that a company must test a drug for years before receiving FDA approval and reaching the market. We can easily identify the "winners" in this system as those who are protected from unsafe drugs that might otherwise harm them. Who are the more "anonymous losers" who suffer due to the strict FDA medical regulations? Explain why according to the theory of rational ignorance, an individual will decide not to participate in the election process (vote).
- It is well-known that when a couple ‘lives together before marriage,’ then this increases the chance of divorce.How might an economist explain this phenomenon, using the concept of opportunity cost? Briefly explain.What is an analytical device used to model welfare economic theory.What is the difference of absolute advantage and comparitive advantage?
- Define the Fisher effect. To what extent do empirical tests confirm that the Fisher effect exists in practice?What is the Coase theorem? What are its implications?According to Kenneth Arrow, there are minimum conditions to which a social choice rule (constitution) needs to conform to in order to be ethically acceptable. Explain these conditions. Does majority decisions rule conform to Arrows conditions?
