1.2.1 rational decision making

Question 1

Define utulity?

Answer 1

this is the satisfaction gained from consuming a product.

Question 2

why do consumers wish to maximize utility?

Answer 2

A rational consumer would want to make decisions by calculating the utility gained from each decision, this means they will choose what will give them the most satisfaction.

Question 3

why do firms wish to maximize profits?

Answer 3

This assumes that firms are run by their owners and shareholders and aim to maximize profits in order to keep shareholders happy.

Question 4

why do governments aim to maximize social welfare?

Answer 4

well governments are voted by the public so they have to work for the public
-their aim is to maximize their satisfaction by taking decisions that will maximize social welfare.

Question 5

what could be used as an evaluation

Answer 5

firstly economic agents don’t always have the right information necessary to act rationally.
consumers may be irrational when making decisions e.g instead of eating healthy they may seek to junk food