02 Economic Assumptions

Question 1

Define ‘variables’

Answer 1

Something that affects a situation in a way that means you cannot be sure what will happen

Question 2

Define ‘irrational’

Answer 2

not based on clear thought or reason

Question 3

What assumption do economists make about consumers when they make a decision?

Answer 3

That they choose the option that gives them the maximum satisfaction

Question 4

Define ‘maximise’

Answer 4

to increase something such as profit, satisfaction or income as much as possible

Question 5

What assumption do economists make about business when they make a decision?

Answer 5

That they choose the option that maximises their profit

Question 6

Define ‘revenue’

Answer 6

money that a business receives over time
Revenue = Selling Price x Quantity Sold

Question 7

Name the three reasons for consumers not maximising their satisfaction when making a choice.

Answer 7

1. Difficulty calculating the benefits from consuming a product
2. Habit forming
3. Influence of others ‘herd behaviour’

Question 8

Name four reasons why businesses may not always maximise their profit.

Answer 8

1. Conflict of objectives between the owners of a business and the managers of the business.
2. Some firms have alternative business objectives eg. sales maximisation
3. Operating as a charity
4. Businesses operating as social enterprises

Question 9

Define ‘enterprises’

Answer 9

companies, organisations or businesses

Question 10

Explain how imperfect information affects consumer behaviour

Answer 10

When consumers do not have access to all of the information available, they may purchase a product from a more expensive outlet, and will not be able to maximise their benefit.

Question 11

Define ‘administration’

Answer 11

activities involved with managing and organising the work of a company or organisation