1.2.1 Rational Decision Making Flashcards
1
Q
What are the underlying assumptions of rational economic decision making?
A
- Consumers aim to maximize utility
- Firms aim to maximize profit
- Governments aim to maximize social welfare
2
Q
What is Utility?
A
The satisfaction gained from consuming a product
3
Q
What is the rational consumer called?
A
Homo Economicus
4
Q
What does a Homo Economicus do?
A
They make decisions by calculating the utility gained from each decision and chooses the one which will give them the most satisfaction.
5
Q
Why do firms aim to maximize profits?
A
To keep the shareholders happy
