rational decision making 1.2.1

Question 1

Rational decision making

Answer 1

Where consumers allocate their expenditure on goods and services to maximise utility, and producers allocate their resources to maximise profit

Question 2

Utility

Answer 2

Refers to the amount of satisfaction a consumer receives from goods and services

Question 3

Maximising utility

Answer 3

Occurs when an economic agent tries to obtain the most satisfaction that they can from economic activity that they undertake (eg purchasing goods and services)

Question 4

Total utility

Answer 4

The total satisfaction from a given level of consumption

Question 5

Marginal utility

Answer 5

The change in satisfaction from consuming an extra unit

Question 6

Diminishing marginal utility

Answer 6

This means that the marginal utility of consuming extra units decline as more is consumed