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AGGREGATE EXPENDITURE DETERMINANTS: An assortment of ceteris paribus factors that affect aggregate expenditures, but which are assumed constant when the aggregate expenditure line is constructed. Changes in any of the aggregate expenditures determinants cause the aggregate expenditure line to shift. While a wide variety of specific ceteris paribus factors can cause the aggregate expenditure line to shift, it's usually most convenient to group them into the four, broad expenditure categories -- consumption, investment, government purchases, and net exports. The reason is that changes in these expenditures are the direct cause of shifts in the aggregate expenditure line. If any determinant affects aggregate expenditures it MUST affect one of these four expenditures.
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                           RATIONAL BEHAVIOR: The notion that people make decisions based on the desire to obtain the greatest amount of satisfaction. Rational behavior essentially means that people prefer more to less. The presumption of rational behavior underlies most economic analysis, especially that applied to consumer demand theory. Rational behavior is a key assumption used in the study of economics and the choices that people make in pursuit of satisfaction. It builds on the basic premise that people, given the choice, would rather have more than less, that they would rather be better off than worse off.Consider a few examples of rational behavior. - Pollyanna Pumpernickel, a mother of two, decides to purchase a 16 ounce bag of Double Dot Caramel Nougat Clusters at the MegaMart Discount Super Center for $1.29 rather than paying $1.79 for a 12 ounce bag at the Curious Curt's Convenience Corner.
- Manny Mustard, owner and proprietor of Manny Mustard's House of Sandwich, decides to increase production and raise the price of his popular Deluxe Club Sandwich because it is becoming increasingly popular and his customers are buying more.
- Professor Grumpinkston, of the Ambling Institute of Technology, decides to use the same textbook for his course in the spring semester as the fall semester so that he does not have to prepare a new set of lecture notes.
- Roland Nottingham, a registered voter, decides not to vote in the Shady Valley mayoral election because the incumbent mayor, Victor Thurgood is the only candidate and he needs to spend election day mowing and fertilizing his yard before the rain comes.
In each case, the chosen option is the rational course of action that leads to an improvement in satisfaction for the decision maker. The choice generates more satisfaction rather than less.Maximizing UtilityThe specific phrase used to capture the notion of rational behavior is utility maximization. The utility part of this phrase means the satisfaction of wants and needs. The maximization part means reaching the greatest level possible.This utility maximization assumption is primarily used in the context of consumer demand theory. This theory analyzes consumer buying choices with a keen eye on explaining and understanding the demand curve, the law of demand, and the demand side of the market. More Than MoneyThe notion of rational behavior is occasionally misinterpreted to mean that people only seek monetary or material benefits, and that their decisions only apply to market activity. Rational behavior applies to all sorts of decisions, whether or not markets are involved and whether or not the benefits are monetary or material.In other words, it is entirely rational for a person to choose nonmonetary rewards over material benefits. Suppose, for example, that Johnathan McJohnson quits his high-paying job with OmniConglomerate, Inc. to pursue a career as a pantomime artist. The monetary rewards are substantially less as a pantomime artist, but Johnathan really, really likes performing pantomime. He gains enormous nonmonetary benefits from this activity. While his family and friends suspect that Johnathan is crazy (or irrational), his choice reflects rational behavior based on the benefits he receives.
Recommended Citation:RATIONAL BEHAVIOR, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: July 26, 2024].
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Today, you are likely to spend a great deal of time flipping through the yellow pages seeking to buy either a coffee cup commemorating the first day of spring or a printer that works with your stockpile of ink cartridges. Be on the lookout for the happiest person in the room.
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