rational decision making

Question 1

how to calculate profit

Answer 1

total revenue - total cost

Question 2

what are the two assumptions of rational decision making

Answer 2

firms want to maximise profit and consumers want to maximise utility

Question 3

Rational decision making for consumers

Answer 3

Economists assume that consumers want to maximise their utility.

Question 4

Rational decision making for firms

Answer 4

Economists assume that firms want to maximise their profit

Question 5

what does utility mean

Answer 5

In economics, utility means happiness/benefit/satisfaction

Question 6

Write the definition of: Herd behaviour

Answer 6

Consumers are influenced by the behaviour of others.

E.g. consumers may start smoking just because they see friends and celebrities smoking.

Question 7

Write the definition of: Habitual behavior

Answer 7

When consumers are in the habit of making certain decisions

Question 8

Write the definition of: Weakness at computation

Answer 8

Consumers are bad at making calculations, estimating probabilities and working out future benefits/costs.

Question 9

wh

Question 10

what is marketfailure

Answer 10

when price mechanism leads to a misallocation of resources