#2.6 Critiquing maximimising behavior

Question 1

Rational Economic Decision-Making

Answer 1

Consumers and producers are assumed to act in their best self-interest, aiming to maximize satisfaction (utility) or profit.

Question 2

Rational Consumer Choice

Answer 2

Consumers make decisions based on preferences, consistent rankings, and choosing more over less.

Question 3

Assumptions of Rational Consumer Choice (3)

Answer 3

Completeness: Consumers can rank preferences.
Transitivity: Preferences are consistent.
Non-Satiation: More of a good is always better.

Question 4

Perfect Information

Answer 4

: Consumers have complete and accurate information about all products, prices, and qualities, enabling optimal choices.

Question 5

Utility Maximization

Answer 5

Consumers aim to achieve the greatest satisfaction (utility) given their income and product prices.

Question 6

Behavioural Economics

Answer 6

A field of economics that studies how psychological, social, and emotional factors affect economic decisions.

Question 7

Bounded Rationality

Answer 7

Consumers have limited ability to process information, leading them to settle for a satisfactory choice rather than the optimal one.

Question 8

Bounded Self-Control

Answer 8

Consumers struggle to control their consumption decisions, such as overeating or overspending.

Question 9

Bounded Selfishness

Answer 9

People often act altruistically, prioritizing others’ well-being over their own self-interest.

Question 10

Imperfect Information

Answer 10

Consumers lack access to all necessary information, leading to suboptimal decisions.

Question 11

Rule of Thumb

Answer 11

Simple guidelines or shortcuts used to make decisions, often ignoring detailed calculations.

Question 12

Biases

Answer 12

Anchoring
Framing
Availibility

Question 13

Framing

Answer 13

Decisions are influenced by how information is presented (e.g., “80% lean” sounds better than “20% fat”).

Question 14

Availability Bias

Answer 14

Relying on recent or easily recalled information rather than objective data.

Question 15

Anchoring

Answer 15

Relying on irrelevant initial information when making decisions (e.g., using an initial price as a reference).

Question 16

Nudge Theory

Answer 16

A method to influence consumer behavior in predictable ways without restricting freedom of choice.

Question 17

Choice Architecture

Answer 17

The way options are presented to consumers to influence their decisions.

Question 18

Types of Choice Architecture (3)

Answer 18

Default Choice: Pre-set option unless consumers actively choose otherwise.
Restricted Choice: Limits on available options to guide decisions.
Mandated Choice: Consumers are required to make a decision

Question 19

Advantages of Behavioural Economics

Answer 19

Influences socially desirable behavior (e.g., healthy eating).
Provides flexibility through trial-and-error policies.

Question 20

Disadvantages of Behavioural Economics

Answer 20

Risks manipulation of consumers.
Lacks a unified theory of consumer behavior.

Question 21

Profit Maximization

Answer 21

Firms aim to maximize the difference between revenue and costs.

Question 22

Alternative Business Objectives

Answer 22

Growth Maximization: Expanding market share and economies of scale.
Revenue Maximization: Prioritizing sales over profits.
Satisficing: Achieving satisfactory results rather than maximizing.

Question 23

Corporate Social Responsibility (CSR)

Answer 23

Firms act ethically to minimize negative externalities (e.g., pollution) and promote positive social outcomes.

Question 24

Nudge Examples

Answer 24

Tax reminders with personalized messages.
Placing healthy food at eye level in stores.
Highlighting energy savings from solar panels.

Question 25

Implications of Default Choice

Answer 25

Most people stick with default options, so governments or firms can guide behavior

Question 26

Framing in Marketing

Answer 26

Ads emphasizing benefits (“20% extra free”) rather than price cuts.

Question 27

Rational Producer Behaviour

Answer 27

: Producers aim to maximize profits by minimizing costs and optimizing output.

Question 28

Market Share

Answer 28

The percentage of total sales in a market controlled by a firm, indicating competitiveness.

Question 29

Criticism of Rational Behaviour Models (2)

Answer 29

Assumes consumers always maximize utility.
Ignores psychological and social influences.

Question 30

Social Responsibility in Firms

Answer 30

Reducing pollution or supporting fair labor practices to gain consumer trust.