Foldvary Econ 5 PS 3

Problem Set #3

Econ 5, Foldvary, SCU

Due Monday, Sept. 24

Please type, print, or write very legibly.

Put your first name and then last name at the upper right corner.

Submissions after 1 PM Sept 24 will have 20% deducted.

Submissions after the start of class on Sept 26 will not get credit.

Brief answers are sufficient.

David Friedman says in Hidden Order that economics is about the implications of the premise that human beings act rationally.

He also says that people "tend to choose the correct way" to achieve their objectives.

a) Based on the class lecture and discussion of Sept. 21, what exactly does "rational" mean in economics?

b) How would human action not be rational?

c) Do people make mistakes? If so, do they always choose the correct way to achieve their goals? How does that relate to rationality?

d) In what way do individuals and governments act irrationally, and how consistent is that with the rationality axiom?