Economic assumptions

Question 1

What are the underlying assumptions about the behaviour of economic agents?

Answer 1

• Consumers aim to maximize their benefit.
• Businesses aim to maximize their profit.

Question 2

Why might consumers fail to maximize their benefit?

Answer 2

• Difficulty in calculating benefits: Consumers may not have enough information or struggle with complex decisions.
• Habits: Consumers often stick to habits that may not provide maximum benefit.
• Copying others: Social influence can lead consumers to make suboptimal choices.

Question 3

Why might producers fail to maximize their profit?

Answer 3

• Revenue or sales maximization: Managers may focus on growing sales or revenue instead of profits.
• Customer care prioritization: Businesses might prioritize customer satisfaction or loyalty over profit.
• Charitable work: Producers may allocate resources to non-profit activities, reducing profit potential.