Consumer Behaviour

Question 1

What is rational behaviour? (Orthodox economic theory)

Answer 1

• Choose independently from one another
• Have fixed and stable preferences
• Have access to complete and accurate information on all the available alternatives
• Respond to incentives to make optimal choices

Question 2

What is the key assumption?

Answer 2

People make choices to maximise the utility/satisfaction (they get from spending their income).
Businesses aim to maximise their profits

Question 3

What is utility?

Answer 3

Measures the satisfaction obtained from purchasing and consuming a product

Question 4

What is total utility?

Answer 4

Total satisfaction from a given level of consumption

Question 5

What is marginal utility?

Answer 5

The change in satisfaction from consuming an extra unit.
Supposed to diminish beyond a certain point (diminishing marginal utility)

Question 6

What is margin?

Answer 6

Having a little bit more or less of something
- Benefit and Cost

Question 7

Marginal benefit

Answer 7

Change in total private benefit from one extra unit

Question 8

Marginal cost

Answer 8

Change in total private cost from one extra unit

Question 9

Utility maximisation?

Answer 9

Consumers are assembled to attempt to maximise utility. With a single product this is the point of satiation
- Businesses = max profits