Behavioural Economics Flashcards
Utility
The enjoyment or satisfaction people receive from consuming goods and services
Marginal Utility (MU)
The change in total utility a person receives from consuming one additional unit of a GnS
Law of Diminishing Utility
Consumers experience diminishing additional satisfaction as they consume more of a GnS during a given period of time
Income Effect
The change in the quantity demanded of a GnS that results from the effect of a change in price on consumer purchasing power, holding other factors constant
Substitution Effect
The change in the quantity demanded of a GnS that results from a change in price making the GnS more or less expensive relative to other GnS. Holding constant the effect of consumer purchasing power
Network Externalities
Exist when the usefulness of a product increases with the number of consumers who use it
Market Failure
A situation in which the market fails to produce the efficient level of output
Behavioural Economics
The study of situations in which people act in ways that are not economically rational
Opportunity Cost
The highest-valued alternative that must be given up to engage in an activity
Endowment Effect
The tendency if of people to be unwilling to sell something they already own even if they are offered a price more then they would be willing to pay for it
Sunk Cost
A cost that has already been paid and cannot be recovered
Budget Constraint
The amount of income consumers available to spend on GnS
