Behavioural Economics

Question 1

Traditional economic theory characteristics

Answer 1

-Behaves rationally
-Has perfect knowledge
-Acts solely in self interest
-Aims to maximise personal utility

Question 2

What is Rational decision-making?

Answer 2

This is when the individuals compares the cost or benefits of alternatives then select one that maximises their own utility

Question 3

What are economic incentives?

Answer 3

These are the costs of benefits that influence an individuals behaviour. (these aren’t often to do with finance)

Question 4

What is Total utility ?

Answer 4

This is the aggregate sum of satisfaction or happiness gained from consumption of a good or service.

Question 5

What is Marginal utility ?

Answer 5

Marginal utility is the additional satisfaction gained from the consumption of that extra unit

Question 6

Diminishing marginal returns

Answer 6

As you keep adding more units later unita add less and less benifits than earlier units

Question 7

Diminishing marginal utility

Answer 7

As you keep adding more units later units will give less utility as a pose to the earlier ones