Question

the five foundation's of economics are related to the concept of rational behavior why?

Answer 1

The five foundations of economics are : incentives , trade offs , opportunity costs , marginal thinking , creation of value through trade .

Now in every foundation of ecnomics we find that there is a decision making opportunity . As for example , people need to be rational in order to respond to incentives rationally like tax refunds . In the world of scarce resources , every decision made will have some opportunity cost . So trade off or true choice of second best alternative must be made rationally . Marginality or calculation of marginal benefits and marginal costs of an action is also based on rationality . Free trade leads to specialization and can generate gains from trade .

Rational behaviour is the practise of decision making , whereby an individual does such sensible choice making , that gives him the optimum benefits . All these above foundations of economics is based on optimization of benefits . Be it trade off or marginal thinking etc , every aspect is based on the fact that people reach for alternatives or respond to a particular economic condition to optimize benefits , and such is not possible if people are not rational .