2 Individual Economic Decision Marketing

Question 1

What is the consumers aims when making economic decisions?

Answer 1

To maximise their utility

Question 2

What is the firms aim when making economic decisions?

Answer 2

To maximise profits

Question 3

What is a consumers utility?

Answer 3

The total satisfaction received from consuming a good or service

Question 4

What is marginal utility?

Answer 4

The extra satisfaction derived from consuming one extra unit of the good

Question 5

Why is the demand curve downwards sloping?

Answer 5

Because of the diminishing marginal utility

Question 6

What does the law of diminishing marginal utility suggest?

Answer 6

That consumer surplus generally declines with extra units consumed because the extra unit generates less utility than the one already consumed

Question 7

When current resources be misallocated?

Answer 7

When incentives and not given properly

Question 8

What is symmetric information?

Answer 8

When consumers and producers have perfect market information to make their decision

Question 9

What can symmetric information lead to?

Answer 9

And efficient allocation of resources

Question 10

What is imperfect information?

Answer 10

When information is missing so an informed decision cannot be made

Question 11

What can imperfect information lead to?

Answer 11

A misallocation of resources as consumers might pay too much or too little and firms might produce the incorrect amount

Question 12

What is asymmetric information?

Answer 12

When there is unequal knowledge between consumers and producers

Question 13

What can asymmetric information lead to?

Answer 13

Market failure or misallocation of resources

Question 14

What is the principal agent problem?

Answer 14

When the agent makes decisions for the principal but the agent is inclined to act in their own interests rather than those of the principal

Question 15

What is an example of the principal agent problem?

Answer 15

When shareholders and managers have different objectives which might conflict. Managers might choose to make a personal gain rather than maximising the dividends of the shareholders

Question 16

How could information be made more widely available?

Answer 16

Through advertising or government intervention

Question 17

What is Homo Economicus?

Answer 17

When a rational consumer is a utility maximiser and makes rational decisions

Question 18

How do social norms affect how the consumer acts?

Answer 18

It is a social pressure that encourages consumers to do things that they would not otherwise do or that they know could be harmful, this creates a bias within the customer

Question 19

What is anchoring?

Answer 19

A type of bias created by the human tendency to rely on the first piece of information they are given.

Question 20

What is altruism?

Answer 20

The act of being selfless and considerate towards other people

Question 21

What is availability bias?

Answer 21

A type of bias towards events that were recent, personal or memorable this is because they are overestimated and cause emotional responses

Question 22

What is choice architecture?

Answer 22

The way choices are presented to consumers

Question 23

How can a well designed choice architecture help customers avoid making a rational decisions and poor choices?

Answer 23

Because the different designs affect the choice consumers make

Question 24

What is framing?

Answer 24

The way by which consumers are influenced by the context of how a choice is presented

Question 25

What is an example of framing?

Answer 25

If consumers are told the monthly payments for a good or service, rather than the aggregate yearly payments, they are more likely to purchase the goods or service, since it seems more affordable

Question 26

How is the context of framing made?

Answer 26

Through word choice and it affects the choice consumers make

Question 27

What is the aim of nudges?

Answer 27

To change the behaviour of consumers without taking away their freedom of choice

Question 28

What is an example of a nudge?

Answer 28

Rather than banning something like junk food, replacing it with healthier food is still a nudge. This allows consumers to make a free choice, but alters their behaviour to choose the healthy option

Question 29

Why are nudges sometimes argued to be manipulative?

Answer 29

Because consumers still don’t get a choice between them

Question 30

How can nudges help prevent consumers making a rational or poor decisions?

Answer 30

Due to the imperfect information that exists between consumers and firms therefore welfare is maximised

Question 31

What is a default choice?

Answer 31

When a consumer is automatically enrolled into a system, such as a pension scheme

Question 32

What is a restricted choice?

Answer 32

when the choice of a consumer is restricted, but is still there

Question 33

What is a mandated choice?

Answer 33

When consumers are required to state whether they wish to participate in an action. For example, in the UK everyone applies for or renews a driving license is asked if they wish to sign it for organ donation