- Economic agent
- An economic agent is a person or organisation that makes economic decisions, such as a household deciding what to buy, a firm or a government.
- Utility
- Utility is the satisfaction or benefit a person gets from consuming goods and services.
Each economic agent is assumed to maximise one thing
Can you name the three economic agents and what each is assumed to maximise?
Introductory economic models give each of these three agents one objective.
Consumers are the individuals and households who buy goods and services, and each is assumed to maximise utility, the satisfaction from what it consumes.
Can you think of an example?
A student with £20 for the week splits it between lunches and bus fares in the way that she expects will satisfy her most.
Producers are the firms that turn factors of production into goods and services to sell, and each is assumed to maximise profit, total revenue minus total cost.
Can you think of an example?
A Cornish bakery chooses how many pasties to bake, and what to charge, to make the gap between its revenue and its costs as large as it can.
Government is the central and local authorities that tax, spend and make rules, and it is assumed to maximise social welfare, the well-being of society as a whole.
Can you think of an example?
A council with £2 million to spend asks whether a new bus route or road repairs would do more good for all its residents.