Final answer:
People in economics are assumed to be rational, respond to incentives, and make decisions at the margin.
Step-by-step explanation:
People are rational: In economics, the assumption that people are rational means that they make decisions based on careful thought and weighing the costs and benefits. For example, if a person is considering buying a car, they would compare the price, fuel efficiency, and other factors to determine which option is the best value for their needs.
People respond to economic incentives: Economic incentives are factors that motivate people to take certain actions. For instance, if a government offers a tax credit for purchasing energy-efficient appliances, people may be more likely to buy those appliances to save money on their taxes.
Optimal decisions are made at the margin: Marginal analysis is a method used in economics to determine the optimal level of a decision. It involves considering the additional benefits and costs of a small change in a decision. For example, a business may use marginal analysis to determine how much to increase production based on the expected additional revenue and costs.