Rational Decision Making

Question 1

What do we assume about people?

Answer 1

• People aim to maximize their own welfare/satisfaction

- Have limited income and allocate money in order to give them the highest satisfaction

Question 2

What do we assume about producers/firms?

Answer 2

• They wish to maximize profit

- Government wishes to improve the social and economic welfare of citizens

Question 3

What can consumer satisfaction be called?

Answer 3

Surplus

Question 4

Why are Economic agents not always rational?

Answer 4

• Are influenced by their social networks
• Lack of self control and seek immediate satisfaction
• Have limited capacity to calculate all costs
• Have a strong default to maintain the normal.