1. Economists are often criticized for making assumptions, but assumptions are necessary for establishing a premise to evaluate situations against. One assumption that is often made is that people are rational. In examining this assumption, it can be validated in that people tend to be rational for the most part. Rationality can be superseded by feelings, so an assumption of 100% rationality 100% of the time could not be validated. However, an assumption of rationality is not only a reasonable assumption but also the most efficient model.
A model of irrational behavior could be constructed, as opposed to a model of rational behavior. The irrational model would be one where the subject did things that he knew would result in an outcome opposite to what he desired. Since this model would be predicated on what is not wanted, it would not be a good assumption to make. A model of irrational behavior could conceivably generate billions of actions that did not result in the desired outcome before generating one that was on target. The model would only produce the desired behavior through the process of elimination. Therefore, the best assumption is one that can be used to achieve the desired result.
2. The poverty that exists in South America is not due to a lack of natural resources or diminished labor forces. South America is rich in natural resources and has a very large labor force. However, other conditions present in South America mitigate against prosperity. One of these is a widespread lack of education among workers. Another is the inability of South Americans to manage the resources that they do have. In Venezuela, for example, Mark Falcoff writes that ôOver time, corruption, mismanagement, and inefficiency have wasted much of the nation's oil wealth, leaving 80 percent of the population in poverty (2002). Unlike industrialized nations such as the United States or those of Europe and Asia, South America has n...