2. Economic assumptions
Underlying assumptions in economics:
Economists assume that individuals act in a rational way.
1. Consumers aim to maximize benefit: consumers will always choose a
course of action that will give them the greatest satisfaction/utility
2. Businesses aim to maximize their profit: They will want to choose a course
of action with the best financial results as they want to make as much profit
as possible
Reasons why consumers may not always maximize
their benefit:
1. Consumers are not always good at calculating their benefits.
2. Consumers have (buying) habits that are hard to give up (and may affect
their ability to make rational choices).
3. Consumers are influenced by behaviors of others.
Reasons why producers may not always maximize
their profit:
1. The performance of some businesses may be influenced by the behavior of
other people in the organization. (Producers may have managers that
maximize revenue or sales)
2. Some producers have alternative business objectives. (e.g. they may
prioritize caring for costumers)
3. Some commercial enterprises operate as charities (aim to raise money and
awareness for a particular cause, e.g. UNICEF).
4. An increasing minority of businesses are being set up as social enterprises.
(Organizations that operate commercially but aim to maximize
improvements in human or environmental well-being)
2. Economic assumptions 1
Underlying assumptions in economics:
Economists assume that individuals act in a rational way.
1. Consumers aim to maximize benefit: consumers will always choose a
course of action that will give them the greatest satisfaction/utility
2. Businesses aim to maximize their profit: They will want to choose a course
of action with the best financial results as they want to make as much profit
as possible
Reasons why consumers may not always maximize
their benefit:
1. Consumers are not always good at calculating their benefits.
2. Consumers have (buying) habits that are hard to give up (and may affect
their ability to make rational choices).
3. Consumers are influenced by behaviors of others.
Reasons why producers may not always maximize
their profit:
1. The performance of some businesses may be influenced by the behavior of
other people in the organization. (Producers may have managers that
maximize revenue or sales)
2. Some producers have alternative business objectives. (e.g. they may
prioritize caring for costumers)
3. Some commercial enterprises operate as charities (aim to raise money and
awareness for a particular cause, e.g. UNICEF).
4. An increasing minority of businesses are being set up as social enterprises.
(Organizations that operate commercially but aim to maximize
improvements in human or environmental well-being)
2. Economic assumptions 1
