1.2.1 - Rational decision making

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Created by
Tayyibah Hussain

Cards (4)

  • The underlying assumptions of rational economic decision making:
    • consumers aim to maximise utility
    • firms aim to maximise profits
    • Governments aim to maximise social welfare
  • Consumers aim to maximise utility: Utility is the satisfaction gained from consuming a product
  • Firms aim to maximise profit: Economic theory assumes that firms are run for their owners and shareholders and so aim to maximise profit in order to keep the shareholders happy.
  • Governments aim to maximise social welfare : Governments are voted in by the public and work for the public, so should aim to maximise their satisfaction by taking decisions which increase social welfare