Homo Economicus

A person that desires to maximize his/her needs or desires. Homo economicus is used most of the time to refer to the rational economic actor, who desires wealth, does not desire to work if it can be avoided, and is able to find ways achieve those ends. This assumption is accepted by many economists, especially those who follow rational choice theory, but it remains controversial. The concept of homo economicus was developed by utilitarian thinkers, and contrasts with the constructs of behavioral economics.

Fig. 53 Economic man. The graph demonstrates why, if the assumption of rational consumer behaviour holds, a consumer's INDIFFERENCE CURVES cannot cross. Indifference curves II and I₁ I₁, show a consumer's preference between two products, X and Y. Point A on indifference curve II represents a higher level of satisfaction to the consumer than point B on indifference curve I₁ I₁ because point A represents more of both products than point B. Yet point C lies on both curves. This suggest that the consumer, having preferred the combination of goods indicated by point A to the combination represented by point B, now regards them as equal at point C. If the consumer is rational, such an inconsistent or intransitive set of preferences would not arise -hence indifference curves do not intersect.

economic man

an assumption in economic theory that individuals act rationally in specifying their objectives and then take decisions that are consistent with those objectives. Thus, the ENTREPRENEUR will set a goal of PROFIT MAXIMIZATION and will adjust his output and price to achieve this goal. Again, the CONSUMER will seek to maximize his UTILITY or satisfaction and will determine his purchases in the light of his tastes for products and the relative prices of those products. See Fig. 53 for an illustration of rational consumer choice. See CONSUMER RATIONALITY, CONSUMER EQUILIBRIUM, BEHAVIOURAL THEORY OF THE FIRM.