Chapter 2 Flashcards
The concept of rational behavior means that _____
The rational individual will also _____
- the individual has alternatives, can order those alternatives on the basis of preference, and can act consistently on that basis.
- choose those alternatives whose expected benefits exceed their expected costs.
Traditionally, economics has focused on __________
However, the concept of rational behavior can be _________
Any differences in our behavior can be __________
- the activities of business firms, and much of this book is devoted to exploring human behavior in a market setting.
- applied to other activities, from politics and government to family life and leisure pursuits.
- ascribed to differences in our preferences and in the institutional settings, or constraints, within which we operate.
Rational behavior implies that
people have choices, and choices imply that there is a cost to anything.
All choices involve
cost–benefit calculations.
The timing and riskiness of options will ________
The more distant into the future benefits will be received or costs incurred, ________
The more risky options are, ________
- affect their present value.
- the lower their present values.
- the greater their cost (or the lower their net value).
The importance of groups’ “common interest” can ___________
However, a “common interest” can more effectively ______
This suggests that, given other considerations, an increase in group size beyond some point can _________
- significantly affect the willingness of group members to cohere and pursue the common interest of the membership.
- motivate a “small” group than a “large” group.
- have an adverse effect on the motivation that group members have to pursue their group’s common interest.
Appeals to people’s public spiritedness can _____
but they should not be consider a cure-all for_____
Prices also have an economic role to play in______
- change behavior of large groups, at least to a limited extent
- major scarcity problems (for example, the water problems in California during its recent annual droughts).
- encouraging people to pursue their “common interests.”
The logic of collective action can ____
The logic can also ____
- explain the growth in employee shirking and the misuse of resources as firms grow.
- explain why firms divide their operations into small groups, including departments and teams.
The basic problem of managers can be construed as
one of overcoming the large-group problem that, at its heart, is one of overcoming Prisoner’s Dilemmas.
A boss who is tough on employees can ____
There is, however, both ____
- have supporters among employees as well as owners.
- an optimal amount of toughness on the part of bosses and an optimal amount of shirking on the part of workers.
A boss who is not tough on shirkers is
also a shirker.
Leadership in the form of setting a course for all to follow can be
productive since it can reduce the haggling over what course of action all should take.
Residual claimants have powerful incentives to
encourage firms to minimize costs and maximize profits since such claimants have claims to any firm resources after all other claims have been fulfilled.
Companies are typically controlled by the owners of capital because
they would otherwise have to fear that their capital, once deployed in companies, would be subject to appropriation by workers.
Utility
satisfaction a person receives from the consumption of a good or service or from participation in an activity. Happiness, joy, contentment, or pleasure might all be substituted for satisfaction in the definition of utility.
