1.2.1 Unit content Students should be able to: explain the underlying assumptions of rational economic decision making– consumers aim to maximise utility firms aim to maximise profits

Neoclassical economic theory Neoclassical economic theory assumes that economic actors are rational. What does this mean? (HINT – there are three parts to explain)

Answer Neoclassical economics is “an approach to economics that relates s_______ and d________ to an individual's rationality and their ability to maximize utility or profit.” It is based on the 18 th century classical theorists such as ________________ It assumes that economics agents act in their own best interests. Who are economic agents?

Definition of rational In Economics, what does rational mean?

Maximisation Neoclassical theory assumes that economic agents will act to maximise their utility. What do consumers do? What do workers do? What do firms do? What do governments do?

The margin Remember this? Economics agents tend to consider the marginal utility (benefit of ____ more bag of crisps, employing _____ more worker etc.) rather than t______ utility