1.2.1 Rational Decision Making ✅

Question 1

What does classical economics believe?

Answer 1

That economic agents act rationally which making decisions.

Question 2

What does rational mean?

Answer 2

Economic agents are able to consider outcomes of their available choices and recognise the net benefit from each. Will therefore select the one with the highest benefit.

Question 3

What is net benefit?

Answer 3

Sum of benefits - sum of cost.

Question 4

How do each economic agent act rationally?

Answer 4

Consumer=maximise utility
Producers= maximise profits
Government= maximise welfare
Labour= maximise wage
(Each identify different things as benefits).

Question 5

How can the assumption that economic agents will act rationally when making decisions be faulty?

Answer 5

Ignores social and emotional factors that may play a role.

Question 6

Name social and emotional factors?

Answer 6

-social awareness (aware of facts).
-social norms.
-social pressure.
-emotional arousal (increase demand for health insurance after plane crash).