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Economic assumptions
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Economists assume people and businesses act rationally. In real life, they do not always do so.
The assumptions
Consumers aim to maximise their benefit (satisfaction) from what they spend.
Businesses aim to maximise profit.
Businesses aim to maximise profit.
Why consumers may not maximise benefit
Poor at calculations: they may not work out which option gives the best value.
Habit: buying the same things out of routine.
Imitating others: copying what friends or celebrities buy.
Habit: buying the same things out of routine.
Imitating others: copying what friends or celebrities buy.
Why producers may not maximise profit
Managers may aim to maximise sales revenue instead, for example to grow the business.
They may put customer care first.
Some take part in charitable activities that cost money but help the community.
They may put customer care first.
Some take part in charitable activities that cost money but help the community.
A shopper always buys the same brand of coffee even though a cheaper one tastes the same to her. Why is she not maximising benefit?
- She buys out of routine rather than comparing.
Answer: Habit
Economists assume consumers maximise benefit and businesses maximise profit. Consumers may not, due to poor calculations, habit and imitation. Producers may aim for sales, customer care or charitable activities.
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