1.2.1: Rational Decision Making Flashcards

1
Q

What is economic welfare?

A

The level of prosperity (and standard of living) of an group/country.

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2
Q

What is utility?

A

The satisfaction derived from consuming a good or service.

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3
Q

What is Homo Economicus?

A

A theory of humans as agents who are consistently rational and maximise utility.

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4
Q

What is Homo Emotionalis?

A

A theory of humans as agents who are consistently irrational and don’t maximise utility.

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5
Q

Consumers aim to maximise ________.

A

Utility.

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6
Q

Firms aim to maximise ________.

A

Profit.

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7
Q

Governments aim to maximise ________.

A

Welfare.

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8
Q

How do consumers aim to maximise utility?

A

The rational consumer is called Homo Economicus (rational decisions, maximising utility), giving them the most satisfaction.

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9
Q

How do firms aim to maximise profit?

A

Firms are run for their owners and shareholders, aiming to maximise profit in order to keep them happy.

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10
Q

How do governments aim to maximise welfare?

A

Governments are voted in by the public, and work for the public, so should aim to maximise social welfare for their satisfaction.

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11
Q

What can influence decision making?

A

•Social factors.
•Emotional factors.

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12
Q

What are social factors that influence decision making?

A

-Social awareness (e.g. health risks).
-Social norms (e.g. demand for recycled bags).
-Social pressure (e.g. peer pressure affecting demand for drugs).

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13
Q

What are emotional factors that influence decision making?

A

-Emotional arousal (e.g. health insurance after an accident).
-Personal insecurity (e.g. binge eating/drinking).
-Personal attachment (e.g. season tickets).

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14
Q

Why may people not act rationally?

A

Economic agents don’t always have the necessary information to make rational decisions, and consumers don’t always make calculated decisions.

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