Which of the following is one of the assumptions of the prevailing rational-world paradigm?

• A. Individuals have well-defined preferences and make decisions to maximize their utility.
• B. Government intervention is always necessary to correct market outcomes.
• C. Economic agents act based solely on social norms and traditions.
• D. Markets always fail to allocate resources efficiently.

Answer: (A)

Verified step by step guidance

1. Understand that the rational-world paradigm in microeconomics assumes that individuals behave rationally when making economic decisions.
2. Recall that one key assumption is that individuals have well-defined preferences, meaning they can rank their choices consistently.
3. Recognize that these individuals make decisions aimed at maximizing their utility, which is a measure of satisfaction or benefit.
4. Note that this paradigm does not assume government intervention is always necessary, nor that economic agents act solely based on social norms or that markets always fail.
5. Therefore, identify the assumption that 'Individuals have well-defined preferences and make decisions to maximize their utility' as a fundamental part of the rational-world paradigm.