1.2.1 Rational decision making

Question 1

What is Rational Decision-Making?

Answer 1

This is an area of behavioural economics.
When making economic decisions;
- Consumers aim to maximize their utility
- Firms aim to maximize profits.

Question 2

What is Utility?

Answer 2

Refers to the level of satisfaction a consumer receives from consumption of a product or service

Question 3

What are the steps of Rational Decision-Making?

Answer 3

1) Identify the problem
2) Find and identify the decision criteria
3) Weigh the criteria
4) Generate alternatives
5) Evaluate alternative options
6) Choose the best alternative
7) Carry out the decision
8) Evaluate the decision