1.2.1 Rational Decision Making

Question 1

Assumptions between consumers and utility

Answer 1

Economics makes assumptions that consumers seek to maximise utility/benefit they derive from purchasing goods/services based on rational decision making

Question 2

Assumptions between producers and utility

Answer 2

Economics makes assumptions that producers seek to maximise their utility by selling goods/services for the maximum possible profit

Question 3

Do most producers/firms aim to maximise profits?

Answer 3

Yes since profit means more stability however charities aren’tcare included nor public sectors such as health (people don’t really utilise these resources efficiently)

Question 4

Reason why consumers might be rational

Answer 4

• If the consumer is making decisions based on their underlying preferences then they are receiving the best possible product and therefore the best quality of life
• However, there is no ‘best’

Question 5

Reasons why consumers might be irrational

Answer 5

• buying things they don’t need out of greed or fear that it will be gone
• Influenced and biased by ads (herding)

Question 6

Bounded rationality

Answer 6

In which we attempt to satisfy not optimise

- A decision that will be good enough, rather that best possible

Question 7

What is not represented in the price of something we buy?

Answer 7

The price of recycling/consequences of making the product (externality)

Question 8

Externality

Answer 8

Economic spill affair that isn’t included in the price