Option 2E.2: The German Democratic Republic, 1949-90
TOTAL FOR SECTION A = 20 MARKS
SECTION B
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When analysing markets, a range of assumptions are made about the rationality of economic agents involved in the transactions
The Wealth of Nations was written
1776
Rational
(in classical economic theory) economic agents are able to consider the outcome of their choices and recognise the net benefits of each one
Rational agents will select the choice which presents the highest benefits
Producers act rationally by
Selling goods/services in a way that maximises their profits
Workers act rationally by
Balancing welfare at work with consideration of both pay and benefits
Governments act rationally by
Placing the interests of the people they serve first in order to maximise their welfare
Groups assumed to act rationally
Consumers
Producers
Workers
Governments
Rationality in classical economic theory is a flawed assumption as people usually don't act rationally
A firm increases advertising
Demand curve shifts right
Marginal utility
The additional utility (satisfaction) gained from the consumption of an additional product
If you add up marginal utility for each unit you get total utility
