Economics HL 2.4, 2.7, 2.8

Rational Consumer Choice

Rational Consumer Choice

The assumption that consumers make decisions based on rational calculations and select choices that maximize their utility.

Perfect Information

The assumption that individuals have access to all information available at all times in order to make the best possible decision.

Biases

Influences on decision-making that can lead to deviations from rational behavior, such as common sense, intuition, emotions, and personal/social norms.

Bounded Rationality

The limitation of rational decision-making due to factors such as thinking capacity, availability of information, lack of time, and too many choices.

Bounded Self-Control

The limitation of individuals to regulate their behavior and make decisions in the face of conflicting desires or impulses.

Bounded Selfishness

The recognition that individuals do not always act within their own self-interest and may engage in selfless actions without expecting anything in return.

Imperfect Information

The recognition that information is not perfectly accessible due to factors such as intellectual property rights, cost of accessing information, and the amount of information available.

Choice Architecture

The intentional design of how choices are presented to influence decision-making, including default choices, restricted choices, and mandated choices.

Nudge Theory

The practice of influencing choices using small prompts to guide behavior while still allowing individuals to have freedom of choice.

Profit Maximization

The rational business objective of maximizing profits by producing at the level where marginal cost equals marginal revenue.

Growth

The objective of increasing sales revenue and market share to benefit from economies of scale and reduce the likelihood of failure.

Revenue Maximization

The short-term strategy of maximizing revenue by producing up to the level where marginal revenue equals zero.

Market Share

The objective of increasing market share by maximizing sales, often achieved through lower prices and clearing stock during sales.

Satisficing

The decision-making approach where businesses aim to meet a minimum threshold or standard of performance rather than striving for the absolute best outcome.

Corporate Social Responsibility (CSR)

The practice of conducting business activity in an ethical way and balancing the interests of shareholders with those of the wider community.