Chapter 5: Consumer Choice Flashcards
What is the Freudian reasoning behind consumer behavior?
Security, Sex, and Ego
What is the Economic Explanation behind consumer behavior?
Demand, the willingness to buy and if a product is affordable
The Determinants of Demand Include what?
It includes consumer tastes, income, expectations, and the availability of alternative goods
What is Utility Theory?
How much pleasure a product gives off influences how much we are willing to pay for it
What is Utility?
Expected Satisfaction received from a good or service
What is Total Utility?
The total satisfaction from consuming a product
What is Marginal Utility?
How much satisfaction is given after consuming the last unit of a product
The Marginal Utility Formula
Change in total utility / Change in Quantity
A consumer will be willing to buy a product when what happens?
When either the product gives more marginal utility, and or the price falls.
Law of Diminishing Marginal Utility
Additional units of a good yield less additional utility
When does total utility increase?
Only when marginal utility is positive
What happens when a good is increasingly consumed?
Its marginal utility gradually gets smaller
Law of Demand
Demand rises as prices fall creating a downward sloping demand curve
Market Demand
The sum of all demands for a product, usually in the thousands
Consumer Surplus
The difference between max price a consumer is willing to pay, and how much is actually paid
Price Discrimination
Charging different consumers different prices for the same exact good in order to maximize revenue.
What items are influenced by price discrimination?
Products such as cars, homes, and plane tickets
What is Utility Maximization?
Choosing a good(s) the deliver the most marginal utility per dollar amount.
Utility Maximization Formula
MU (First Item) / P (Dollar )
Optimal Consumption
A mixture of goods that yield the most utility for your income.
