4.1.2 = BET Flashcards
What does ‘utilty’ mean?
The amount of satisfaction/benefit that a consumer gets from a good/service.
What does it mean when an economic agent is assumed to be ‘rational’?
That the agent only considers what is relevant to maximising their utility.
What is total utility?
The total benefit gained from the consumption of a good/service.
What is marginal utility?
The benefit gained from the consumption of one additional unit of a good/service.
What law relates to repeated consumption of a good?
The law of diminshing marginal utility.
For each additional unit consumed, the marginal utility decreses.
What are the 5 types of information status when refering to sellers and consumers.
Symmetric Information = All parties to the transaction have equal and perfect knowledge.
Equal Information = All agents have equal access to relevant information.
Perfect information = All parties are assumed to have full knowledge.
Asymetric Information = When one agent has more/superior knowledge than the other.
Imperfect information = An agent does not have have all of the information to make a rational decision. This can be a cause of market failure.
What is a merit and a demerit good?
Merit = Good that when consumed is beneficial to society
Demerit = Good that when consumed is detrimental to society.
What term is given to the reason humans wont make perfect, utility maximising decisions?
Bounded rationality
What does bounded rationality mean? What causes it?
The idea that the consumer will not make the most optimal decision due to a number of limitations:
-Imperfect Information
-Time limit on the decision
-An inability of the human brain to process every available piece of information
What are some reasons that a consumer may choose to make sub-optimal decisions? (There are 6)
Biases - Toward a certain brand/product
A heuristic - A ‘thinking shortcut’ to avoid decision making I.E buying the cheapest product OR going back to the same product for the sake of it
Anchoring - Placing greater importance on a certain piece of information I.E The first price we encounter for a product is a good price.
Social Norms - Influenced by the actions of a larger social group.
Habitualism - Repeating the same pruchase without re-assesing decision
Altruism - A desire to act out of moral fairness
What is choice architecture?
Name at least 3 types.
When individuals decision making is influenced by the manner in which the information is presented to them.
Framing - Choices influenced by way in which information is presented
Restricted Choices - Choices are restricted
Nudging - The use of suggestion to influence choice.
