1.2.1 Rational decision-making

• What is the standard analysis in economics based on?

  It is based on significant assumptions about how firms and consumers behave.
• How do consumers behave according to the standard analysis?

  Consumers act rationally by maximizing their utility.
• How do firms behave according to the standard analysis?

  Firms act rationally by maximizing their profits.
• What does rational thinking involve in decision-making?

  It involves analyzing possible outcomes before making a decision.
• What does utility refer to in economics?

  Utility refers to the level of satisfaction a consumer gets from a product or service.
• How does the satisfaction level change with multiple cups of coffee consumed by a consumer?

  The first cup provides much higher satisfaction than any later cups.
• What are the key assumptions of the standard analysis in economics?

  • Consumers act rationally to maximize utility.
  • Firms act rationally to maximize profits.
  • Rational thinking involves analyzing possible outcomes before making decisions.