Question

John has an economics test tomorrow. He must study and has planned the rest of his day so that he can fit some study time in. He has decided to go to the gym and then study for several hours. Which of the following statements is true?
A) John's decision isn't related to the economic way of thinking because his decision on how to allocate his time did not involve money.
B) John's decision on how to allocate his time is inconsistent with the rationality assumption since he has decided to spend some time at the gym.
C) John's decision on how to allocate his time is consistent with the rationality assumption since the decision is intended to make him better off.
D) John would have been better off if he chose to study more.

Answer 1

Answer:

C) John's decision on how to allocate his time is consistent with the rationality assumption since the decision is intended to make him better off.

Explanation:

One of the pillars of modern economic theory is that individuals are rational and they will try to maximize their benefit at the lowest possible cost. Since resources are finite, then all our decisions are made on the margin. What is the marginal benefit that we can obtain from purchasing something at its marginal cost (marginal cost = sales price for an individual).

In this case, John is trying to maximize his utility, first he will go to the gym which probably provides a larger benefit to him, and then he is going to study (which also provides a benefit). He could have chosen to either go out to somewhere else or just stayed home and watch TV, play videogames, etc., but apparently these activities do not provide him enough benefits but represent a large cost in time.