IB Economics Topic 2.4.1 Rational Consumer Choice Revision Notes (HL)

IB Economics Topic 2.4.1 Rational Consumer Choice Revision Notes (HL) | RevisionDojo

Written by official IB examiners

Definition

Rational consumer choice

Economic theory where consumers make choices in their best self-interest trying to maximize utility.

Most economic models and theories are based on the idea that decision-makers maximise their own satisfaction:

Consumers maximise their utility (satisfaction from buying a good or service).
Producers maximise their profits.
Workers maximise wages.
Investors maximise returns.

However, as we will discover in this section, these assumptions may not always hold.

Assumptions behind the rational consumer choice

Consumer Rationality

Rational consumer choice assumes that consumers are rational. In economics, consumer rationality exists when consumers follow these three principles:

Completeness.
Transitivity.
Non-satiety.

Completeness

Consumers can always rank goods and services in order of preference.
They can state with certainty whether they prefer good $X$ to good $Y$, $Y$ to $X$, or if they are indifferent between the two.

Transitivity

Preferences remain consistent and do not cycle.
For example, if a consumer prefers good $X$ to good $Y$, and good $Z$ to good $X$, they will also prefer good $Z$ to good $Y$.

Non-satiety

More is always better.
Having more of a good or service is preferred because it increases utility or satisfaction.

Utility Maximisation

Nice try, unfortunately this paywall isn't as easy to bypass as you think. Want to help devleop the site? Join the team at https://revisiondojo.com/join-us. exercitation voluptate cillum ullamco excepteur sint officia do tempor Lorem irure minim Lorem elit id voluptate reprehenderit voluptate laboris in nostrud qui non Lorem nostrud laborum culpa sit occaecat reprehenderit

Definition

Paywall

(on a website) an arrangement whereby access is restricted to users who have paid to subscribe to the site.

anim nostrud sit dolore minim proident quis fugiat velit et eiusmod nulla quis nulla mollit dolor sunt culpa aliqua

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat.

Duis aute irure dolor in reprehenderit

Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur. Excepteur sint occaecat cupidatat non proident, sunt in culpa qui officia deserunt mollit anim id est laborum.

Note

Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam quis nostrud exercitation.

Excepteur sint occaecat cupidatat non proident

Nemo enim ipsam voluptatem quia voluptas sit aspernatur aut odit aut fugit, sed quia consequuntur magni dolores eos qui ratione voluptatem sequi nesciunt. Neque porro quisquam est, qui dolorem ipsum quia dolor sit amet, consectetur, adipisci velit.

Tip

Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat.

Lorem ipsum dolor sit amet, consectetur adipiscing elit.
Sed do eiusmod tempor incididunt ut labore et dolore magna aliqua.
Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris.
Duis aute irure dolor in reprehenderit in voluptate velit esse cillum.

Unlock the rest of this chapter with a free account

Definition

Rational consumer choice

Economic theory where consumers make choices in their best self-interest trying to maximize utility.

Most economic models and theories are based on the idea that decision-makers maximise their own satisfaction:

Consumers maximise their utility (satisfaction from buying a good or service).
Producers maximise their profits.
Workers maximise wages.
Investors maximise returns.

However, as we will discover in this section, these assumptions may not always hold.

Assumptions behind the rational consumer choice

Consumer Rationality

Rational consumer choice assumes that consumers are rational. In economics, consumer rationality exists when consumers follow these three principles:

Completeness.
Transitivity.
Non-satiety.

Completeness

Consumers can always rank goods and services in order of preference.
They can state with certainty whether they prefer good $X$ to good $Y$, $Y$ to $X$, or if they are indifferent between the two.

Transitivity

Preferences remain consistent and do not cycle.
For example, if a consumer prefers good $X$ to good $Y$, and good $Z$ to good $X$, they will also prefer good $Z$ to good $Y$.

Non-satiety

More is always better.
Having more of a good or service is preferred because it increases utility or satisfaction.

Utility Maximisation

Definition

Paywall

(on a website) an arrangement whereby access is restricted to users who have paid to subscribe to the site.

anim nostrud sit dolore minim proident quis fugiat velit et eiusmod nulla quis nulla mollit dolor sunt culpa aliqua

Duis aute irure dolor in reprehenderit

Note

Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam quis nostrud exercitation.

Excepteur sint occaecat cupidatat non proident

Tip

Lorem ipsum dolor sit amet, consectetur adipiscing elit.
Sed do eiusmod tempor incididunt ut labore et dolore magna aliqua.
Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris.
Duis aute irure dolor in reprehenderit in voluptate velit esse cillum.

1. Introduction to Economics2 subtopics

2. Microeconomics12 subtopics

3. Macroeconomics7 subtopics

4. The Global Economy10 subtopics

IB Economics 2.4.1 Rational Consumer Choice Notes

1. Introduction to Economics2 subtopics

2. Microeconomics12 subtopics

3. Macroeconomics7 subtopics

4. The Global Economy10 subtopics

Assumptions behind the rational consumer choice

Consumer Rationality

Completeness

Transitivity

Non-satiety

Utility Maximisation

anim nostrud sit dolore minim proident quis fugiat velit et eiusmod nulla quis nulla mollit dolor sunt culpa aliqua

Duis aute irure dolor in reprehenderit

Excepteur sint occaecat cupidatat non proident

Unlock the rest of this chapter with a free account

Assumptions behind the rational consumer choice

Consumer Rationality

Completeness

Transitivity

Non-satiety

Utility Maximisation

anim nostrud sit dolore minim proident quis fugiat velit et eiusmod nulla quis nulla mollit dolor sunt culpa aliqua

Duis aute irure dolor in reprehenderit

Excepteur sint occaecat cupidatat non proident

Unlock the rest of this chapter with a free account