implement regulations that must be followed by consumers and
producers.
How Are Decisions Made?
How do consumers, producers, and governments make decisions? We
will be examining how and why governments make decisions in detail
throughout this book, so we will leave that until later. For now, let’s focus
on how consumers and producers make their decisions. Economists
usually assume that consumers’ and producers’ decisions are both
“maximizing” and “marginal.” What does this mean?
Maximizing Decisions
Economists usually assume that consumers and producers make their
decisions in an attempt to do as well as possible for themselves—this is
what we mean by self-interest. In the jargon of economics, people are
assumed to be maximizers. When individuals decide how much of their
labour services to sell to producers and how many products to buy from
them, they are assumed to make choices designed to maximize their well-
being, or utility. When producers decide how much labour to hire and
how many goods to produce, they are assumed to make choices designed
to maximize their profits. We explore the details of utility maximization
and profit maximization in later chapters.
Marginal Decisions