Do consumers and firms always maximise? Edexcel International GCSE Economics revision
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In plain words
Simple economics assumes that everyone acts in their own best interest: consumers buy whatever gives them the most satisfaction for their money, and businesses do whatever makes the most profit.
Real people and real firms do not always behave like that, and it helps to know why.
Three things to know
- The two underlying assumptions: consumers aim to maximise their benefit, and businesses aim to maximise their profit.
- Consumers may not maximise benefit because they are not good at working out what benefits them most, they have habits that are hard to give up, and they copy what other people do.
- Producers may not maximise profit because managers may aim for the highest revenue or sales, the business may put caring for its customers first, or it may do charitable work.
Tips and tricks
- Know the three reasons on each side. Questions usually ask for one reason and an example.
- Aiming for the most sales is not the same as aiming for the most profit: selling more may mean cutting the price or spending heavily on advertising.
It lands in your notebook with its questions as flashcards.
Do consumers and firms always maximise?: 5 questions and answers
These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.
What do economists assume businesses aim to maximise?
Profit maximisation is the standard assumption.
Which is a reason why consumers may not maximise their benefit?
Buying something because others do may not be what suits you best.
A firm gives part of its profit to local schools. This shows that
Charitable work lowers profit, so profit is not its only aim.
A shopper always buys the same brand of tea without comparing prices. This is an example of
Habits are hard to give up, even when a better choice exists.
Why might a manager aim for the highest sales and not the highest profit?
Managers who are rewarded for sales have a reason to chase sales.
Quiz
5 questions
Tap an answer and you’ll see straight away whether it’s right, and why.
Worksheet
3 questions, 7 marks. Write your answers on paper, then check them.
Do consumers and firms always maximise?
Edexcel International GCSE Economics 4EC1 · 7 marks · papermunch.org
Name ______________________________ Date ______________
State the two assumptions economists make about consumers and businesses.[2]
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Consumers aim to maximise their benefit, and businesses aim to maximise their profit.
Explain one reason why a consumer may not maximise benefit.[2]
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Habit: a shopper keeps buying the brand they have always bought, even when another brand would give better value.
A manager is paid a bonus based on the value of sales. Explain why the firm may not maximise profit.[3]
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The manager has a reason to maximise sales revenue, for example by cutting prices or spending more on advertising. That raises sales but may reduce profit.
Answers: Do consumers and firms always maximise?
- 1. Consumers aim to maximise their benefit, and businesses aim to maximise their profit.
- 2. Habit: a shopper keeps buying the brand they have always bought, even when another brand would give better value.
- 3. The manager has a reason to maximise sales revenue, for example by cutting prices or spending more on advertising. That raises sales but may reduce profit.