1.1 Consumer behaviour

Question 1

What are the 2 conditions for demand?

Answer 1

• Income, tastes and preferences (Consumer situation)

- Prices of substitute and complementary goods

Question 2

What is utility?

Answer 2

The satisfaction or benefit that a consumer gains from consuming a good or service

Question 3

What is marginal utility?

Answer 3

The additional welfare, satisfaction or pleasure gained from consuming one extra unit of a good

Question 4

When does maximisation occur?

Answer 4

Maximisation occurs when an economic agent tries to obtain the most that they can from the economic activity that they undertake

Question 5

What is rational choice theory?

Answer 5

How rational a choice is and based off of if the costs outweigh the benefits

Question 6

What is the law of diminishing marginal utility?

Answer 6

States that as a person increases consumption of a good - whilst keeping consumption of other goods constant - there is a decline in the marginal utility from consuming each additional unit of a good

Question 7

What is the equation for utility maximisation?

Answer 7

(Marginal utility of good x / price of good x) = (Marginal utility of good y / price of good y)

MUx/Px = MUy/Py

MU - Marginal utility
P - Price
X - good x
Y - good y

Question 8

What is the importance of the marginal benefit/cost?

Answer 8

The margin is fundamental when individuals make choices

Individuals will only choose an option if the marginal benefit is greater than the marginal cost