1.2.1 Consumer behaviour

Question 1

Rational consumer behaviour definition and assumptions (4)

Answer 1

= decision-making process based on making choices that max utility.
This assumes:
* Consumers make all choices independently
* Consumers have fixed and consistent preferences
* Consumers have full information
* Consumers always make the optimal choice given their preferences

Question 2

Total utility

Answer 2

total satisfaction the consumer gets from purchasing units of a good. Rational consumers aim to maximise their total utility

Question 3

Marginal utility

Answer 3

the change in total utility from consuming an extra unit of a product.

Question 4

Law of Diminishing Marginal Utility

Answer 4

as a consumer buys and consumes more units of a good, the extra satisfaction gained diminishes. - means at higher quantities, consumers are less willing to pay a higher price, helping to explain the downward sloping demand curve.