2.1 Rational Decision Making

Question 1

What to rational consumers do?

Answer 1

Maximise utility

Question 2

Assumptions of the rational choice model?

Answer 2

1) Consumers choose independently
2) Consistent preferences
3) Full information
4) Optimal choices

Question 3

Rational rule (MB & MC)?

Answer 3

Consumers should continue to consume additional units until marginal benefit equals marginal cost

Question 4

How has the rational choice model been challenged?

Answer 4

Rise of behavioural economics