Economic Assumptions Flashcards
1. describe the basic assumptions economists make about consumers and producers. 2. explain why consumers often behave irrationally (don't maximise their benefit from consuming goods) 3. identify business objectives other than profit maximisation.
1
Q
What is the economic assumption on consumers?
A
Consumers aim to maximise their benefits - will make a rational decision and choose a course of action that will maximise their benefits
1
Q
What is the economic assumption on producers?
A
producers aim to maximise profit.
2
Q
Why do consumers behave irrationally and not maximise their benefits?
A
- Computational difficulties - Consumers may be unable to calculate which offer is better and make an irrational choice.
- Habitual behavior - If a consumer uses a certain product for a long period of time, they might not switch to a better product because they are used to using the current one.
- Herd behavior - Consumers may buy products just because their friends or parents bought it. They get influenced.
3
Q
Why don’t producers maximise profit?
A
- Some businesses have objectives other than profits. (ex. Unicef - non profit organisation)
- Businesses may struggle to maximise profit if there are new competitors in the market.
- producers may be focused on growth in order to benefit from more revenue/lower average costs in the future
- producers may focus on customer care/customer satisfaction in order to have loyal customers/repeat sales
