Individual economic decision making ( Micro )

Question 1

What does rational behaviour mean?

Answer 1

That people will try to make decisions in their self-interest or to maximise their private benefit

Question 2

What does utility mean?

Answer 2

The benefit or economic welfare from consuming a good or service

Question 3

What’s the theory of diminishing marginal utility?

Answer 3

For a single consumer, the marginal utility derived from a good or service diminishes for each additional unit consumed

Question 4

In the equation MU = P , what does each thing mean?

Answer 4

Marginal Utility = Price

Question 5

What’s the difference between the scenarios of “Asymmetric information” and “information gap”

Answer 5

Asymmetric information is when either the buyer or seller has more information on the economic transaction than the other.

Information gap is when there’s a large gap between the available information and the perfect information ( e.g someone smoking without knowing the consequences )