Economic Assumptions

Question 1

Irrational definition

Answer 1

Not based on clear thought or reason

Question 2

Rational definition

Answer 2

Based on clear thought or reason

Question 3

What do we assume about consumers when making a choice?

Answer 3

They always aim to maximize their benefit and satisfaction. (Preferred choice, price comparison and quality comparison)

Question 4

What do we assume about businesses when making decisions?

Answer 4

They will always choose the course of action that has best financial result, and maximizing revenue.

Question 5

What are some reasons consumers don’t maximize their benefit?

Answer 5

• Difficulty calculating benefits from consuming a product (hard to quantify)
• Developing buying habits, because they are loyal to a particular brand (businesses charge higher when loyal customers)
• Influence from others can cause people to adopt similar buying habits to those around them (peer pressure or fit in)

Question 6

Reasons why businesses may not always maximize profit?

Answer 6

• Some producers have alternate business objectives, so other issues are more important to them than profit (customer care causes spending more money)
• Not-for-profit organizations aim to raise awareness and funds for a cause
• Social enterprises operate commercially but aim to improve lives or the environment (generates revenue but other key aims)

Question 7

Which of the following would help consumers and producers to maximize benefits and profits? Lower prices, access to information, improve transport networks, or better quality products?

Answer 7

Access to more information