a) Rational decision making

a) the underlying assumptions of rational economic decision making:

• consumers aim to maximise utility

• firms aim to maximise profits

economists assume economic agents make rational decisions

• rational decision making = making choices depending on the net benefits of each option

• consumers make rational decisions by attempting to maximise the utility from their choices

  • utility = the satisfaction gained from a good or service

• firms make rational decisions by attempting to maximise the profit from their choices

• governments make rational decisions by attempting to serve the people to maximise their welfare