Unit 1 Flashcards
What is individual demand?
Demand of one person, the key is utility.
What is utility?
The satisfaction a consumer gains from consuming a good or service
Individual Demand assumptions?
Place a value equal to perceived satisfaction
Aim to maximise utility per pound spent and will compare to price paid
Rational consumers will only consume if the perceived satisfaction is greater than or equal to price
What is maximisation?
When an economics agent tries to obtain the most they can from the economic activity they undertake
Individuals maximise utility
Firms maximise profits
Governments maximise welfare
Economic objectives of households?
Maximise private benefit from consumption
Maximise private benefit from working
Economic objectives of firms?
Profit maximisation
Profit satisficing
Sales maximisation
Growth
What is utility theory?
The satisfaction that an individual derives from consuming a good or service
What is total utility?
The aggregate amount of satisfaction an individual derives from consuming a good or service
What is marginal utility?
The amount of satisfaction an individual derives from consuming one extra unit of a good or service
How do you calculate marginal utility?
change in total utility / change in number of units consumed
What is utility maximisation?
Where the last £ spent on each product yields the same amount of marginal utility
What is information failure?
Market failure where consumers do not have symmetric information or have asymmetric information
What is symmetric information?
When all relevant information is known by BOTH parties
What is information asymmetry?
When some parties in a transaction have more information regarding the product than others.
What is perfect knowledge?
A theoretical concept which occurs when ALL consumers in a market are fully aware of the price, quantity available and other relevant information when making decisions.
