1.2.1 Flashcards
1
Q
How do rational consumers make choices?
A
They aim to maximise utility from purchasing and consuming goods and services using a limited budget.
2
Q
What is utility?
A
The satisfaction gained from consuming a product.
3
Q
What does the rational choice model assume?
A
-Consumers choose independently
-A consumer has fixed and consistent rates and preferences
-Consumers gather complete information on the alternatives
-Consumers always make an optimal choice given their preferences.
4
Q
What is total utility?
A
The total satisfaction from a given level of consumption
5
Q
What is marginal utility?
A
The change in satisfaction from consuming one extra unit
6
Q
What is diminishing marginal utility?
A
Standard theory believes in diminishing returns.
