LO:
a) The underlying assumptions of rational economic decision making:
a) The underlying assumptions of rational economic decision making:
- consumers aim to maximise utility
- firms aim to maximise profits
Decision making
It is important to make assumptions about what different economic agents are trying to achieve.
Consumers: an assumption is that the individual wants to gain as much satisfaction as possible from the combination of goods that are consumed.
Firms: assume that all firms want to make as much profit as possible.
Consumers: an assumption is that the individual wants to gain as much satisfaction as possible from the combination of goods that are consumed.
Firms: assume that all firms want to make as much profit as possible.
Key assumptions:
Consumer = maximise satisfaction (utility)
Firms = maximise profit
Consumer = maximise satisfaction (utility)
Firms = maximise profit