Economic Assumptions (Edexcel IGCSE Economics): Flashcards
Exam code: 4EC1
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Define rational.
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Define rational.
In classical economic theory, rational describes economic agents who consider the outcomes of their choices and select the option offering the highest net benefits.
How are consumers assumed to act rationally?
Consumers are assumed to act rationally by maximising their utility.
How are producers assumed to act rationally?
Producers are assumed to act rationally by selling goods and services in a way that maximises their profits.
How are workers assumed to act rationally?
Workers are assumed to act rationally by balancing their welfare at work with consideration of both pay and benefits.
How are governments assumed to act rationally?
Governments are assumed to act rationally by placing the interests of the people they serve first in order to maximise their welfare.
Which four types of economic agent are assumed to act rationally?
The four economic agents assumed to act rationally are consumers, producers, workers and governments.
True or False?
The assumption that economic agents always make rational decisions is flawed.
True.
In many ways the assumption of rational decision making is flawed, because agents do not always maximise their net benefits.
True or False?
Consumers are always guided by a rational computation of net benefits rather than emotion.
False.
Consumers are often more influenced by emotional purchasing decisions than by a rational computation of net benefits.
In classical economic theory, economic agents are to behave rationally.
In classical economic theory, economic agents are assumed to behave rationally.
What are the three reasons consumers may not maximise their utility?
The three reasons are measuring satisfaction, habits and social norms.
Define consumer inertia.
Consumer inertia is the tendency to keep making the same habitual purchases because convenience is prioritised.
Why does a wider range of choice make it harder for consumers to maximise utility?
A wider range of choice makes it harder for consumers to gather information and compute which option offers the highest net benefits.
How do sellers exploit consumers' habitual buying patterns?
Sellers exploit habitual patterns by placing products at the checkout till to benefit from impulse purchasing, such as chewing gum.
How do producers influence consumer choices through social norms?
Producers influence consumer choices through advertising, including lifestyle, celebrity endorsement and influencer culture.
True or False?
Consumers never make purchasing decisions that directly harm them.
False.
Consumers do make purchasing decisions that directly harm them and are usually addictive, for example alcohol.
often prompts consumers to make purchasing decisions that may go against a computation of net benefits.
Peer pressure often prompts consumers to make purchasing decisions that may go against a computation of net benefits.
Define a firm's objectives.
A firm's objectives are its reason for existence, or the desired focus of its owners.
What is a firm's main objective?
A firm's main objective is profit maximisation.
Besides profit maximisation, what other objectives might a firm pursue?
A firm might also pursue managerial objectives (growth), customer care and charitable activities.
Why might managers pursue growth instead of profit maximisation?
Managers may pursue growth to increase sales revenue or market share, and because a growing firm is less likely to fail.
True or False?
Firms with a charitable objective no longer need to make a profit.
False.
Firms with a charitable objective still require profit to survive, but will accept less than if they were profit maximising.
Google has partnered with the World Wildlife Fund and the Jane Goodall Institute to protect endangered species and .
Google has partnered with the World Wildlife Fund and the Jane Goodall Institute to protect endangered species and habitats.
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