LS7 - Decision Making In Economics

Question 1

Assumptions of the behaviours of economic agents can be made by?

Answer 1

Deduction (hypothesis) and induction (collect evidence)

Question 2

What are decision makers assumed to be in neo classical and classing economics?

Answer 2

Rational

Question 3

What does being rational mean for consumers?

Answer 3

Buying products that maximise utility

Question 4

What is utility?

Answer 4

Satisfaction or benefit from consuming a good

Question 5

What does being rational mean to firms? And how do they achieve it?

Answer 5

Maximising profit as that is their utility. Maximising profit can be achieved through producing efficiently as possible and making things consumers both want and can afford

Question 6

What do economic agents require to make rational decisions?

Answer 6

Time, information and the ability to process information

Question 7

What is behavioural economy?

Answer 7

A school of economic thought based on evidence and observations to develop economic decision making. It uses an inductive approach than a deductive approach in classical and neoclassical economics.

Question 8

What do behavioural economics assume?

Answer 8

That individuals have bounded rationality which is when individuals wish to maximise utility but can not due to a lack of time, information and ability to process information.

Question 9

What prevents rational decision making for humans?

Answer 9

Habitual behaviour and consumer inertia

Question 10

What is habitual behaviour and consumer inertia?

Answer 10

Habitual behaviour is when individuals do what they do solely based on them always doing it. Consumer inertia is when individuals don’t have enough information to process and express change in their actions.