Concept of Rationality

 DEFINITION OF RATIONALITY
 The word rational derives from

Latin word ration which

mean ,reason, or
computation
 From the economics point of

view rationality guide the

people to make good
choices or decision
Rationality picture
 What makes people happy
a. Taking good decision
b. Maximizing their satisfaction
c. Maximizing the utility and welfare
a. So the people have limited income
(limited budget) and they seek to allocate their
funds in a way that improve thir standard of
living
 What makes people unhappy

 Imperfect or incomplete information

 Imperfect or incomplete information which can
lead us to a loss of satisfaction and welfare not
only for people themselves but which affect
other and our society as a whole

 Poor choices
 Making poor choices can also lead us to loss our
satisfaction and utility
 Advertising and marketing

 Multinational companies have advertising and

marketing budgets that often run into hundreds
of million of pounds. We are all influenced by
their advertising and marketing as result we get
loss of satisfaction and utility because of
misleading advertising