ARE PEOPLE REALLY RATIONAL, Do they always think about margin?
Rational and margin
Most of the economists came to a conclusion that individuals are always related to Rational and margin. Why they came to that conclusions
Let us see…
Rational people Systematically and purposefully do the best they can to achieve their objectives, given the opportunities they have.
As opportunity came into the picture let us understand the rational and margin with the concept of. OPPORTUNITY COST.
What is opportunity cost ?
The loss of other alternatives when one alternative is chosen.
In every individuals life opportunity cost play a major role in decision making.
FOR EXAMPLE:- At the ice cream parlour, you have to choose between ROCKY ROAD or STRAWBERRY. When you choose ROCKY ROAD, the opportunity cost in the enjoyment of the strawberry.
A rational decision maker takes an action if and only if the marginal benefit of the action exceeds the marginal cost.
In the above example that person thought by taking ROCKY ROAD he gets marginal benefit.
Economists use the term marginal change to describe a small incremental adjustment to an existing plan of action. Keep in mind that margin means “edge”, so marginal changes an adjustment around the edges of what you are doing
This one of the important principal in economics
PRINCIPAL: RATIONAL PEOPLE THINK AT THE MARGIN. .
The reason is that a person’s willingness to pay for a good is based on the marginal benefit that an extra unit of the good would yield. The marginal benefit, in turn, depends on how many units a person already has.
Rational and margin
Most of the economists came to a conclusion that individuals are always related to Rational and margin. Why they came to that conclusions
Let us see…
Rational people Systematically and purposefully do the best they can to achieve their objectives, given the opportunities they have.
As opportunity came into the picture let us understand the rational and margin with the concept of. OPPORTUNITY COST.
What is opportunity cost ?
The loss of other alternatives when one alternative is chosen.
In every individuals life opportunity cost play a major role in decision making.
FOR EXAMPLE:- At the ice cream parlour, you have to choose between ROCKY ROAD or STRAWBERRY. When you choose ROCKY ROAD, the opportunity cost in the enjoyment of the strawberry.
A rational decision maker takes an action if and only if the marginal benefit of the action exceeds the marginal cost.
In the above example that person thought by taking ROCKY ROAD he gets marginal benefit.
Economists use the term marginal change to describe a small incremental adjustment to an existing plan of action. Keep in mind that margin means “edge”, so marginal changes an adjustment around the edges of what you are doing
This one of the important principal in economics
PRINCIPAL: RATIONAL PEOPLE THINK AT THE MARGIN. .
The reason is that a person’s willingness to pay for a good is based on the marginal benefit that an extra unit of the good would yield. The marginal benefit, in turn, depends on how many units a person already has.
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