Question

Each statement below is part of an economic model. Indicate whether the statement is a prediction of cause and effect or an assumption.
a. People behave rationally: __ .
b. If the price of a good falls, people will consume more of that good: __ .
c. Mass starvation will occur as population outgrows the food supply: __.
d. Firms want to maximize profits:___ .

Answer 1

Answer: Please refer to answer.

Explanation:

An Assumption in Economics is a condition that is necessary for Economic theory to be founded upon. You could call them SIMPLIFYING conditions as they make the Theory easier to understand.

Cause and Effect I hope and believe is self explanatory.

a. People behave rationally: ASSUMPTION.

This is a basic Assumption in Economics that helps to explain why and how Individuals react to certain things.

b. If the price of a good falls, people will consume more of that good: CAUSE AND EFFECT

People consume more goods (effect) when prices fall (cause).

c. Mass starvation will occur as population outgrows the food supply: CAUSE AND EFFECT .

Mass Starvation will occur (effect) if the population outgrows food(cause).

d. Firms want to maximize profits: ASSUMPTION.

This is another Economic Assumption that attempts to explain why firms act in a certain way.

Answer 2

Answer:

(a) Assumption

(b) Cause and Effect

(c) Cause and effect

(d) Assumption

Explanation:

(a)  People behave rationally: Assumption

Rational behavior refers to a decision-making process that is based on making assumptions that result in an optimal level of benefit or utility.

(b) Cause and Effect

If a price of goods falls that is a cause and the effect is that  people will consume more of the good.

(c) Cause and effect

As the population grows faster than food supply (cause), mass starvation is predicted to occur which is the resultant effect.

(d) Assumption

The maximization of profit is based on the assumption of theory of production and costs.