2.1 Consumer Behaviour

Question 1

Homo Economicus

Answer 1

A hypothetical, perfectly rational individual.
- Optimisation of Choice
- Maximise Utility
- Perfect Information
- Time to Process Information

Question 2

Maximisation

Answer 2

Occurs when an economic agent tries to obtain the most that they can from the economic activity that they undertake.

Question 3

Economic Objectives

Answer 3

The use of resources in order to meet the goals of an economic agent over a period of time.

Question 4

Private Benefits

Answer 4

Those benefits that accrue to an individual or firm through economic activity.

Question 5

Utility Theory

Answer 5

Concerned with the satisfaction that an individual derives from consuming a good or service.

Question 6

Total Utility

Answer 6

The aggregate amount of satisfaction an individual derives from consuming a good or service.

Question 7

Marginal Utility

Answer 7

The amount of satisfaction an individual derives from consuming one extra unit of a good or service.

Question 8

Change in Total Utility over time

Answer 8

Diminishes over time as utils decrease from consumption. Individual becomes more satiated with the product.

Question 9

Marginal Utility Formula

Answer 9

Change in Total Utility/Change in Total Number of Units Consumed

Question 10

Utility Maximisation

Answer 10

Where the last £ a consumer spends on each product yields the same amount of marginal utility.

Question 11

Law of Diminishing Marginal Utility

Answer 11

As a consumer buys and consumes more units of a good, the extra satisfaction gained diminishes.