utility

Question 1

total utility

Answer 1

overall satisfaction that a consumer obtains from the consumption of particular goods and services

Question 2

marginal utility

Answer 2

benefit that a consumer receives from consuming one additional unit of goods or services

Question 3

what is utility

Answer 3

satisfaction

Question 4

difference between marginal and total utility

Answer 4

total utility represents the total fulfilment received by the consumer from consuming various units of a commodity, whereas marginal utility denotes the additional utility derived from the intake of an additional unit of a commodity

Question 5

law of diminishing utility

Answer 5

as quantity consumed increases, the marginal utility derived from each extra unit decreases causing a downwards slope on a graph

Question 6

what does derived mean

Answer 6

obtain

Question 7

average utility

Answer 7

the utility that is obtained by the consumer per unit of commodity consume

Question 8

average utility formula

Answer 8

total utility/ quanitity

Question 9

what is marginal utility equal to

Answer 9

marginal private benefit

Question 10

what is marginal private benefit

Answer 10

benefit that a consumer receives from consuming one additional unit of goods or services

Question 11

when is total utility maximised

Answer 11

when marginal utility is 0

Question 12

what do firms want to maximise

Answer 12

profits

Question 13

what do the government want to maximise

Answer 13

social welfare of citizens

Question 14

what do workers want to maximise

Answer 14

welfare they obtain from work

Question 15

what do consumers want to maximise

Answer 15

their utility when making consumption decisions

Question 16

what is a marginal cost

Answer 16

extra cost of producing an additional unit of a good or service

Question 17

theory of consumer behaviour

Answer 17

every consumer behaves rationally
every consumer has different preferences
every consumer is under a budget constraint
every product has a price

Question 18

every consumer behaves rationally explanation

Answer 18

Consumers try to get the ‘‘most for their money’’ to maximise their total utility

Question 19

every consumer has different preferences explained

Answer 19

Consumers have clear preferences and can determine how much marginal utility they get from consuming more units of a product

Question 20

every consumer is under a budget constraint

Answer 20

All consumers face a budget constraint therefore must make a decision about what they brought on their limited budget

Question 21

every product has a price explained

Answer 21

Every product has a price so consumers must weigh their purchasing decisions based on their marginal utility from consumption and the price of the goods they consume

Question 22

Efficiency

Answer 22

occurs when units of goods are being supplied at the lowest possible average total cost at the fastest rate

Question 23

allocative efficiency

Answer 23

optimal distribution of goods and services, taking into account consumer’s preferences.

Question 24

rational decision making (4)

Answer 24

people use all of the information available to them
people try to maximise total satisfaction
people make independent choice
consumers have stable preferences

Question 25

what does the traditional (neo-classical) economic theory assume

Answer 25

consumers always behave rationally

Question 26

what may consumers compare when buying a product

Answer 26

the extra (marginal) benefit they will receive from a spending decision to the extra (marginal) cost

Question 27

rational choice theory

Answer 27

assumes people have the perfect amount of information about the options available and the consequence of each option

Question 28

issue with rational choice theory

Answer 28

people have imperfect or incomplete information

Question 29

what is behavioural economics

Answer 29

challenges neo-classical economics
adds relevance to the real world.
argues rational decision making isn’t always realistic e.g an impulsive purchase that might not always maximise utility

Question 30

what is rationality often bounded by

Answer 30

limited time to make decisions
too many choices
incomplete or inaccurate info
too much info (could be overwhelming by consumers)
people have different levels of information given to them
consumers may lack self-control (e.g when they smoke or gamble)

Question 31

what makes us question the assumption of rationality

Answer 31

social network may influence our choices
emotions may take over logic
we have a desire for an instant reward
people often stick to default choices
giving to help others- no return e.g charity

Question 32

What can influence consumers decisions according to behavioural economic theory

Answer 32

social network/social norms
buying a particular brand
emotion- making decisions based on our feelings
altruism- making decisions based on kindness and not purely self interest

Question 33

steps government could take to deal with negative externalises of production

Answer 33

Excise tax
Regulation/legislation
Tradeable permits

Question 34

what is Excise tax- correcting market failure

Answer 34

per unit tax on a good meant to reduce the supply to a more socially optimum level
by reflecting the true social costs of production or consumption and by increasing the cost of goods that impose negative externalities, excise taxes encourage producers and consumers to internalize these costs and consider alternative, less harmful options. This can lead to a more efficient allocation of resources and a shift towards cleaner, less harmful production and consumption patterns.

Question 35

Regulation/legislation- correcting market failure

Answer 35

laws limiting the quantity of a good produced or be required to be produced in an environmentally friendly way

Question 36

Tradeable permits- correcting market failure (and definition)

Answer 36

issuing permits to producers of goods which create negative environmental externalities will create a limit on the amount of pollution or harmful activity reducing the overall cost to society of the activity
(where the government gives firms a permit which allows them to produce up to a set amount of a good each year)

Question 37

what is market failure

Answer 37

a misallocations of resources

Question 38

information provision- correcting market failure

Answer 38

addressing the asymmetry of information between buyers and sellers.

Question 39

what is the margin

Answer 39

the focus on the cost or benefit of the next unit or individual, for example, the cost to produce one more widget or the profit earned by adding one more worker.

Question 40

how can subsidies help correct market failure (positive and negative externalities explanation)

Answer 40

Positive externalities: Subsidising the production or consumption of goods with positive externalities (e.g., education, healthcare, renewable energy) can encourage more investment and consumption, leading to increased social welfare.

Negative externalities: Subsidising the adoption of cleaner technologies or practices (e.g., renewable energy, pollution control measures) can incentivise firms to reduce harmful emissions or pollution, thereby mitigating negative externalities and promoting environmental sustainability.

Question 41

why do the government intervene in markets to correct market failure

Answer 41

markets may not always allocate resources efficiently or achieve socially desirable outcomes on their own

Question 42

what does social welfare mean

Answer 42

the general well-being and happiness of people

Question 43

what is the spillover effect

Answer 43

the impact that an activity, event, or transaction has on parties that are not directly involved

Question 44

private optimum consumption

Answer 44

marginal private benefit= marginal private cost

Question 45

positive externalities of production examples

Answer 45

Receiving a college education makes the consumer more likely to contribute to the well-being of society as a whole

Riding a bike to work reduces congestion

Getting a vaccine against communicable disease reduces the chance of you getting others sick

Could benefit third parties