1.2.1 Rational decision making

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5 Terms

1
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what are the 2 underlying assumptions of rational economic decision making?

  • consumers aim to maximise utility.

  • firms aim to maximise their profits.

2
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what is the definition of utility?

  • utility refers to the satisfaction or well-being that individuals derive from consuming goods and services.

3
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what is the definition of profit?

  • profit is the difference between a firm’s total revenue and its total costs.

4
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what is the assumption around firms aiming to maximise their profits?

  • rational firms aim to maximise their profits to ensure business sustainability and growth.

5
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what is the assumption around consumer decision making?

  • utility-maximizing consumers allocate their budgets to maximize satisfaction.