1.2.1 Rational Decision Making Flashcards

1
Q

What are the underlying assumptions of rational economic decision making?

A
  • Consumers aim to maximize utility
  • Firms aim to maximize profit
  • Governments aim to maximize social welfare
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2
Q

What is Utility?

A

The satisfaction gained from consuming a product

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3
Q

What is the rational consumer called?

A

Homo Economicus

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4
Q

What does a Homo Economicus do?

A

They make decisions by calculating the utility gained from each decision and chooses the one which will give them the most satisfaction.

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5
Q

Why do firms aim to maximize profits?

A

To keep the shareholders happy

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