2. Economic Assumptions

• What is the focus of classical economic theory regarding rationality?

  Economic agents consider outcomes of choices
• How do rational agents select their choices according to classical economic theory?

  By recognizing the net benefits of each choice
• What do consumers aim to maximize according to economic assumptions?

  Utility
• How do producers act rationally in economic theory?

  By maximizing their profits through sales
• What do workers balance according to economic assumptions?

  Welfare at work with pay and benefits
• How do governments act rationally according to economic assumptions?

  By prioritizing the interests of the people
• What is a flaw in the assumption of rational decision making?

  Consumers are influenced by emotional decisions
• What do consumers often fail to do according to classical economic theory?

  Maximize their utility
• Why is it difficult for consumers to maximize utility?

  Wider choices complicate information gathering
• What do consumers often lack when making purchasing decisions?

  Time or ability to compare prices
• How do habits affect consumer purchasing decisions?

  They speed up the decision-making process
• What is consumer inertia?

  Prioritizing convenience over rational choices
• How do sellers exploit consumer habits?

  By placing products at checkout for impulse buys
• What role do social norms play in consumer decisions?

  They can prompt decisions against net benefits
• How do producers influence consumer choices?

  Through advertising and celebrity endorsements
• What techniques do producers use to influence consumer choices?

  Advanced behavioral psychology techniques
• What is the main objective of a firm?

  Profit maximization
• What other objectives might firms pursue besides profit maximization?

  Managerial objectives, customer care, charitable activities
• How can managers influence a firm's objectives?

  By focusing on growth and market share
• Why might firms prioritize customer care?

  To improve brand loyalty despite costs
• What is a reason firms engage in charitable activities?

  To meet social objectives while ensuring survival
• Which organizations has Google partnered with for charitable activities?

  World Wildlife Fund and Jane Goodall Institute
• What are the reasons consumers may not always maximize their utility?

  • Difficulty in measuring satisfaction
  • Reliance on habits for quick decisions
  • Influence of social norms and peer pressure
• What are the reasons producers may not seek to profit maximize?

  • Influence of managers focused on growth
  • Prioritization of customer care over profit
  • Engagement in charitable activities