What you need to know...
- You should understand that individuals, firms and governments may have a range of economic objectives.
Note: at AS, you do not need to know the MC = MR profit maximising rule, but you should be aware that profit is the difference between revenue and cost.
Individuals: what do they want?
- Individuals take can take on a duel role as a consumer and a worker
- Unfortunately you and I only have a limited amount of money therefore we have to make decisions about how to spend it as a consumer.
- When faced with a decision about how to spend money consumers will opt for the good or service that gives them the most utility (satisfaction).
- Workers will want higher wages, better job security and improved working conditions.
- We often assume that workers will want to maximise the wages that they earn.
Firms: what do they want?
- Economists assume that most businesses are profit maximisers (profit = revenue – costs).
- This is because they are owned by individuals who want to maximise the return on their investment.
- It is possible that a business will have other objectives, for example, a school or hospital will be focused upon the quality of service provision rather than making profits.
Governments: what do they want?
- The government is the elected representative of the consumers, therefore it should simply act on behalf of the people.
- The government has to decide whether to intervene in the economy.
- Governments of different countries will make different decisions, for example, healthcare in the UK is provided free of charge, whilst a system of private healthcare operates in the USA.
- The UK government's main economic objectives include
1. High and sustainable economic growth
2. Stable prices
3. Trade balance
4. Full employment
Click on the App below to test yourself.