4.1.2 Individual Economic Decison Making Flashcards
What is utility theory?
The benefit/satisfaction we get from consuming a product
What is marginal utility?
The addition to total utility from consuming one more unit
What is the law of diminishing utility?
As we consume additional units of a product, the extra utility from each one falls
What is total utility?
The total benefit we get from consuming a product
What does rational economic decision making mean?
We will keep consuming as long as marginal utility is greater than the marginal cost
Why is the margin important when making choices?
That is where economic decisions are made
What is the significance of asymmetric information?
It makes it difficult for economic agents to make rational decisions and is a potential source of market failure
What are examples of biases in decision making?
Rules of thumb, anchoring, availability and social norms
