Micro 3 : Consumer behaviour, utility and the demand curve

Question 1

Define utility

Answer 1

The property in an action that intends to promote: happiness, satisfaction, and avoid pain and suffering

Question 2

Define marginal utility

Answer 2

The benefit gained from consuming one additional unit of a product or service.

Question 3

Explain the hypothesis of diminishing marginal utility

Answer 3

The phenomenon whereby, as the units of a good or service consumed are increased, the marginal utility of each new unit consumed will diminish (reduce in value).

Question 4

Explain how the desire to maximise utility impacts consumer decisions.

Answer 4

If a consumer want to maximise there utility they would pick the the decision that would make them the happiest with the least suffering

Question 5

Define demand

Answer 5

The quantity of a good or service that consumers are both willing and able to buy at a range of prices over a given period of time

Question 6

Explain how a range of factors will cause demand to increase and decrease

Answer 6

The income affect and the substitution effect

Question 7

What is the substitution effect

Answer 7

The substitution effect occurs when there are other goods available which can act as replacements for the good in question. If the price increases, then consumers may turn to these other goods to meet their wants and needs

Question 8

What is the income effect

Answer 8

The income effect states that as prices for a good or service fall, people can afford to buy more of it with their current level of income, so more are consumed. Opposite if income decrease

Question 9

What is the quantity demanded

Answer 9

Quantity demanded is determined by both the position of the demand curve and where on the demand curve we happen to be (determined by price)

Question 10

What could cause the demand curve to shift

Answer 10

Complements products
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Tastes
Population
Income
Seasons
Substitutions
Expectations
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