1.2.1 Rational decision making
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4 Terms
What is the underlying assumption of rational economic decision making in terms of consumers
Consumers aim to maximise utility. A consumer’s utility is the total satisfaction received from consuming a good or service. Consumers will choose something that will give them the most satisfaction.
What is the underlying assumption of rational economic decision making in terms of firms
Firms aim to maximise profit. Economic theory assumes that firms are run for their owners and shareholders and so aim to maximise profit in order to keep the shareholders happy.
Extra: What is the underlying assumption of rational economic decision making in terms of governments
Governments aim to maximise social welfare. They are voted in by the public so they should aim to maximise their satisfaction by taking decisions which increases social welfare.
What do economic agents not always have
Economic agents do not always have the information necessary to act rationally and consumers do not always make calculated decisions.
