Chapter 7 Flashcards
What does it mean to be rational in economics?
Able to rank in the value of things such, compared to the value of opportunity.
What is Maximisation?
An assumption that economic agents act in a way to maximise their net benefits.
What do consumers maximise?
Their economic welfare and utility by :
comparing the extra cost of consumption to the opportunity cost.
What do workers maximise?
Their welfare by comparing:
Job opportunities,
Pay,
Job security,
Satisfaction
What do firms act to maximise?
Their rewards from ownership and profit made by comparing profit from each opportunity.
What do governments act to maximise?
The welfare of citizens
(However some governments may be curropt so act selfishly)
What is utility?
Satisfaction/ benefit from consuming.
What are some exeptions to maximisation ?
Consumers may not evaluate their total spending before making decisions so they may make decisions in isolation.
May not take all variables into account.
What factors may cause a consumer to not act rationally?7
Lack of self control
Addiction
Social influence (peer pressure)
Think about sacrifice rather than maximisation
Lack of computation
