Question

Economists assume that individuals

a. behave in unpredictable ways.

b. will never take actions to help others.

c. prefer to live in a society that values fairness above all else.

d. are rational and respond to incentives.

Answer 1

Economists assume that individuals:

Answer (D) Are rational and respond to incentives.

Economists assume that every individual is rational and behaves to maximize his motives. A consumer is a rational consumer who focuses on maximizing his utility, and a producer is a rational producer who acts out to maximize his profits and minimize his costs. Economics is all about rational people working to achieve their goals.

Rational behavior can be characterized as making decisions in the optimal ways that maximize a person's incentives. This can be seen in all ways an individual behaves in his life. He will only save up if he has surely of life. He only invests, if the expected returns are satisfactory etc.

Why other options are not correct:

A.) Behave in unpredictable ways.

Economists do not believe that individuals behave in unpredictable ways. Unpredictable ways would result in disruptions and wouldn't come from a rational mind. If given a situation, an individual would always do what serves his motives and provide him incentives. And there is nothing unpredictable in acting out that way.

B.) Will never take actions to help others.

It is false that economists assume individuals to be selfish and they never take actions to help others. This is no such assumption economists make.

C.) Prefer to live in a society that values fairness above all else.

While an individual might prefer to live in a society that values fairness, But this is no such assumption that economics make beforehand. Economics rather assumes that individuals might even want to be unfair to others if it gives them optimal results. A monopolist who is an individual can set a high price even if it hurts the needy consumers. So this is no such assumption economists make.