Consumer Theory Flashcards
People behave as they do because of:
Self Interest
Two things to determine what people will do:
Pleasure received for something vs its cost
What is utility?
the pleasure or satisfaction that one gets from consuming a good or service.
Total utility vs marginal utility:
Total utility refers to the total satisfaction one gets from consuming a product.
Marginal utility refers to the satisfaction one gets from the consumption of one additional unit of a product above and beyond what
As additional units are consumed, marginal utility decreases while total utility increases.
The principle of diminishing marginal utility
, at some point, the marginal utility received from each additional unit of a good begins to decrease with each additional unit consumed
Total utility is maximized when
when marginal utility per dollar spent of two goods is equal.
Bounded rationality:
rationality adjusted for our limitations.
