Chapter 7 - Consumer Behaviour Flashcards
What is utility?
a measure of the amount of satisfaction a person derives from something. Incorporates emotions and sensations.
What is utility maximization?
the idea that people are rational utility maximizers.
What is the principle of revealed preference?
the idea that people’s preferences can be determined by observing their choices and behaviour.
What is utility function?
a formula for calculating the total utility that a particular person derives from consuming a combination of goods and services .
what is a bundle?
a unique combination of goods and services that a person could choose to consume.
What is marginal utility?
the change in total utility that comes from consuming one additional unit of a good or service.
What is the principle of diminishing marginal utility?
the principle that the additional utility gained from consuming successive units of a good or service tends to be smaller than the utility gained from the previous unit.
What is a budget constraint?
a line that shows the possible combinations of goods that a consumer can buy within his or her budget
- increase in income shifts budget constraint outward
- increase in price causes to rotate inward
What is the relation between utility and society?
Direct effect: how you prefer spend your money (inward preferences)
Outside perception: (effect of other people’s reactions on us)
- what others think of your purchases
What is Altruism?
a motive for action in which a person’s utility increases simply because someone else’s utility increases.
- Altruistic and selfish or image-conscious motivations can coexist perfectly well.
What is reciprocity?
responding to another’s action with a similar action.
- Utility maximization suggests people gain utility by punishing bad behaviour and rewarding good behaviour
- negative reciprocity = responding to bad treatment
kindness with kindness
