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The irrationality of the ‘rationality’ assumption

Historically, the term ‘rationality’ has been ascribed various meanings within the sphere of economics.  Typically, rationality has been expressed in terms of the idea that consumers attempt to maximise utility by arriving at an optimal decision in light of a complete set of information relating to the market in which they operate.

That is, the rational person of neoclassical economics opts for the decision that is subjectively best for that person in terms of a given utility function.[1] Consequently, neoclassical reasoning relies heavily on artificial factual assumptions such as perfect information, rather than accepting the reality of limited information and cognitive capacity in making any given decision.[2]

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The ugly (economic) truth about our food industry

When we walk into a major supermarket, some of us expect to fill our trolleys with nutritious food for the week ahead, but nowadays what we’re presented with is a plethora of products. Disregarding perhaps the periphery of the supermarket where the organic fruits and vegetables are, we’re presented with shelves upon shelves of pre-packaged products that no longer resemble food at all. There are aluminium cans of soft drink, fruit juice boxes that have undergone aseptic processing, foil chip packets filled with oxygen, and in the meat aisle we have identical cuts of bacon in vacuum-sealed plastic. Everything has been processed, packaged and with the help of marketing, made to look enticing and palatable. Sadly, a tomato is no longer a tomato – the marriage of economics, science and technology carries it from seed to plate in the most economically efficient manner. Many ‘food products’ today are mass-produced by large multinational corporations who prioritise efficiency, profits and turnover over the health of arguably their most important asset, their consumers.

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The economics of charity: should beggars be choosers?

In microeconomic theory, consumers and producers make up two halves of a productive economy. In such a model, even traditionally marginalised groups can be categorised as consumers or producers, or both.

Specifically, the homeless, who typically have very limited economic productivity and hence income flow, should be thought of as consumers with their own preferences and utilities. This perspective is essential for communities and NGOs when determining financial strategies to minimise homelessness. Using basic consumer theory, I will compare the results of cash and in-kind transfers given to the homeless.

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The price of being cool

Keeping up with current trends has become an incredibly draining task, both financially and mentally. Today’s rapidly changing society can’t stay still for a period of time, before ‘it’s out with the old and in with the new’. Whether it is the Ray-Ban aviators that make everyone look slicker, a pair of Vans or even the chino pants that all the private school boys wear, lots of money is spent on maintaining what is deemed ‘cool’ in our consumerist society.  But why do we do such things? What is the benefit that we gain from investing in these ever changing fashion and fads over and over again?

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Going, going, gone!

Through our life as an economics major in undergraduate school, for three years we are repeatedly bombarded with consumer and producer theory, game theory, and general equilibrium theory. It is not until we are very familiar with these different topics, do we then come across what is, in my opinion, one of the most interesting topics in microeconomics. Auction theory and mechanism design.

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Australia’s Household Saving Ratio – Is the cautious consumer still at large?

In recent years, Australian households have been saving a significantly larger proportion of their disposable income than in the previous two decades. Although the December quarter’s National Accounts data revealed a slight easing in the household saving ratio, the overall picture remains the same. Following a significant spike in December 2008, Australia’s household saving ratio has remained elevated at levels not seen in over two decades. Is this the corollary of the ‘cautious consumer’? Or does it merely reflect a return to more normal patterns of behaviour?

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