7 Rational decision making

Question 1

Utility

Answer 1

Utility is a measure of the satisfaction that we get from purchasing and consuming a good or service.

Question 2

Utility maximisation

Answer 2

The assumption that consumers behave rationally in allocating their limited budget between different products so as to maximise total satisfaction from their purchases.

Question 3

Rational choice

Answer 3

Rational choice involves the weighing up of costs and benefits and trying to maximise the surplus of benefits over costs.

Question 4

Profit maximisation

Answer 4

The assumption that producers wish to produce an output that will create maximum profit levels.