Consumers
End users of a good/service.
Rational decision making
Key definitions
Firms
Businesses producing goods/services.
Rational
Making a logical choice.
Economic agents
Consumers, firms or government.
Utility
Satisfaction from consuming or producing.
Profit maximisation
Assumed goal of firms.
Marginal utility
Satisfaction from one extra unit consumed.
Assumptions
Simplifications needed to build models.
Trolley problem
Ethical dilemma testing utilitarian vs deontological choices.
Behavioural economics
Studies when agents fail to act rationally.
Key concepts
Models assume consumers maximise utility and firms maximise profit.
Rational agents weigh marginal costs against marginal benefits before acting.
Behavioural economics shows agents may not always maximise utility in practice.
Assumptions simplify complex behaviour so models can predict market outcomes.
Relevant tips
- Distinguish 'aim to maximise' from 'always maximise' for evaluation.
Examples & case studies
- The trolley problem — a runaway tram heading for five people: utilitarian logic says pull the lever to save five at the cost of one; deontologists argue you must not actively harm an innocent person.
- Self-driving cars revived this debate when MIT's Moral Machine survey (2018) asked millions of people which lives an autonomous vehicle should prioritise — revealing cultural differences in ethical trade-offs.
- Behavioural economists like Kahneman showed 'System 1' fast thinking often overrides careful utility calculation — explaining why consumers stick with default options or fall for framing effects.