Economic objectives of individuals, firms and governments

Different economic agents will have varying objectives.  We make the assumption that each economic agent will act in its own interest, often these interests will be competing.

 

Consumers

Unfortunately you and I only have a limited amount of money therefore we have to make decisions about how to spend it.  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).

 

Economic theory assumes that people act rationally and attempt to maximise their own welfare

 

Workforce

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.

Businesses

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.

Factor owners

The owners of the factors of production will want maximise the payment they receive.  This is in comparison to firms who will wish to minimise costs, they will only be prepared to pay what the factor of production is worth in the production process.

 

Governments

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.

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