Consumer Behaviour - Micro Flashcards
What is individual economic decision making influenced by?
- rationality
- incentives
- marginal utility
What is being rational?
When economic agents are able to consider the outcome of their choices and recognise the net benefits of each one
How can consumers act rationally?
Maximising utility
How can producers act rationally?
Maximising profits
How can workers act rationally?
Balancing welfare at work with consideration of pay and benefits
How can governments act rationally?
Placing the interests of people first in order to maximise welfare
What is utility?
The satisfaction gained from consumption
What is marginal utility?
Additional utility gained from consumption
What is total utility?
- Marginal utility of each unit consumed added together
- Total utility keeps increasing even while marginal utility is decreasing
What is the law of diminishing marginal utility?
- as additional products are consumed, the utility gained from the next nit is lower than the utility gained from the previous unit
- this explains why the demand curve slopes downward
What is marginal benefit?
Additional utility gained from each extra unit
What is marginal cost?
Extra cost by producing one additional unit
