U1 AOS 1 Lesson 7 Economic Agents - Consumers

Question 1

The traditional view of the consumer

Answer 1

• Has ordered preferences
• Acts rationally
• Is fully informed

Question 2

A consumer aims to maximise their…

Answer 2

Utility or satisfaction

Question 3

Paying your mortgage before buying a new video game would be an example of traditional consumer behaviour because

Answer 3

It shows ordered preferences

Question 4

A consumer conducting research into types and makes of lawn mowers before purchasing the best one is an example of:

Answer 4

Being fully informed.

Question 5

Positive Incentives

Answer 5

Reward a consumer for specific behavior

Question 6

Negative incentives or disincentives

Answer 6

Punish a consumer for specific behavior.

Question 7

Utility

Answer 7

The satisfaction or benefit gained from consuming a good or service

Question 8

Diminishing Marginal Utility

Answer 8

Occurs when an additional unit of a good or service consumed generates a smaller increase in marginal utility than before

→ Total utility grows at a slower rate

Question 9

Marginal Utility

Answer 9

The extra satisfaction gained from consuming an additional unit of a good or service

Question 10

True/False:
Diminishing marginal utility means that total utility decreases

Answer 10

False

Total utility still increases, but at a decreasing rate

Question 11

Colin watching the movie ‘Wolf of Wall Street’ for the 10th time and enjoying it less than the previous times is an example of which phenomenon?

Answer 11

Diminshing marginal utility

Question 12

A rational consumer will aim to

Answer 12

Maximise their overall utility

Question 13

True/False:

A rational consumer will never make a conscious choice that negatively impacts their utility

Answer 13

False

Consumers can (and will) still make decisions that harm their utility, but these are generally limited to the short term or are weighed up against the costs/benefits.

For example, a consumer buying paint to repaint his/her house will likely harm utility in the short term as this is a chore that the consumer does not enjoy. However, in the long term, it improves utility by improving the appearance of the home and increasing its value, while also likely being more cost effective than hiring a painter to repaint the house.

Question 14

The law of diminsing marginal utility guides consumer decisions by…

Answer 14

encouraging consumers not to overconsume one good or service, since the increase to utility from each additional unit consumed gradually reduces.

Question 15

Informed decision making allows consumers to maximise their utility by

Answer 15

comparing all avaliable goods/services, understanding the benefits of each and selecting the good/service which best aligns with their needs