1.2.1 Rational Decision Makaing

• What does classical/free market economics assume about economic agents?

  They behave rationally
• How does a rational consumer behave according to classical economics?

  They seek to maximise happiness (utility)
• What is the definition of utility in economics?

  Happiness
• What does the theory of rational economic decision making assume about economic agents?

  They have full information regarding their choices
• What can economic agents do with full information according to the theory of rational decision making?

  Weigh up the costs and benefits of decisions
• What is the goal of economic agents when making decisions in classical economics?

  To maximise their utility
• What are the key assumptions of classical/free market economics regarding economic agents?

  • Economic agents behave rationally
  • Consumers seek to maximise happiness (utility)
  • Agents have full information about choices
  • Agents can weigh costs and benefits effectively