Questions:
1.Describe each of the four properties of indifference curves.
2. Explain what is meant by "asymmetric information." Identify and explain the two basic types of problems that arise when there is asymmetric information.
3. Much has been made of the fact that people don't consistently act with scientific rationality. What is meant byrationality? Consider the three "systematic mistakes" discussed in your text. What are the costs of making those "systematic mistakes"? Is it possible to act "irrationally," or is rationality defined by the individual's approach to decision making?
4. Describe and explain the budget constraint. How does a consumer maximize utility under a given budget constraint? How do consumers know if they are not maximizing utility?
5. Explain the Condorcet Paradox, the failure of majority rule to produce transitive preferences for society. Explain Arrow's impossibility theorem. What does this say about society's choices?