Consumer behaviour

Question 1

give 3 factors which influence individual economic decision making

Answer 1

1. rationality
2. incentive
3. marginal utility

Question 2

what is marginal utility?

Answer 2

the additional consumer benefit by consuming one more unit of output

Question 3

what do we assume econonmic agents are?

Answer 3

rational - consider options and net benefit

marginal benefits and costs weighed up

Question 4

what is the law of diminishing marginal utility?

Answer 4

the consumption of the next unit has less marginal utility than the previous one

total utility will however still increase

Question 5

when does utility maximisation occur?

Answer 5

when a limited income recieves max satisfaction

Question 6

what is symmetric information?

Answer 6

where the buyer and the seller has the same level of information surrounding a good

perfect flow of info e.g price, substitutes, product claims

Question 7

what is asymmetric information?

Answer 7

an inbalance of information in a market

Question 8

what does asymmetric information result in?

Answer 8

market failiure - under / over provision of goods

Question 9

what is market failiure?

Answer 9

the misallocation of resources in a societal view

Question 10

what does behavoural economics presume?

Answer 10

humans are complex and make decisions based off of bias

Question 11

give 3 reasons why people may not make rational decisions

Answer 11

1. bounded rationality
2. bounded self-control
3. bias

Question 12

what does the bounded rationality theory state?

Answer 12

people will make decisions without all needed info to decide within a time period

Question 13

give 3 reasons bounded rationality theory assumes rationality is limited

Answer 13

1. too much choice
2. too little time
3. limited thinking capacity

Question 14

what does the bounded self-control theory state?

reduces rationality

Answer 14

decision making is based off of desire or impulse

Question 15

give 2 features of the bounded self control-theory

reduces rationality

Answer 15

1. humans make decisions based off of social norms
2. humans make decisions based off of emotions

Question 16

what are the 4 types of bias?

Answer 16

1. rule of thumb
2. anchoring & framing
3. availability
4. social norms

Question 17

what is rule of thumb bias?

Answer 17

biasness based off of lived experiences

Question 18

what is anchor and framing bias?

Answer 18

anchor - bias based off of an intial piece of info
framing - bias based off of how something is worded

Question 19

what is availability bias?

Answer 19

bias based off efficiency and info that comes first

Question 20

what is altriusm?

Answer 20

benefitting a group at a self expense e.g charity

traditional econ states people act in self interest

reduces rationality

Question 21

what is choice architecture?

Answer 21

the intentional design of how things are presented to influence decison making

Question 22

what is the nudge theory?

Answer 22

guide people towards actions while maintaining freedom of choice

Question 23

what are the 3 types of choice architecture?

Answer 23

1. default choice - automatically signed up for particular things off a choice
2. restricted - choices given to individuals are limited
3. mandated choices - there is an obligation or requirement

Question 24

give 2 pros and cons of choice architecture

Answer 24

1. simplifies decision making
2. improved outcomes e.g healthier eating
   or
3. manipulation
4. ethical concerns

Question 25

give 2 pros and cons of the nudge theory

Answer 25

1. cost effective 2. preserves freedom of choice or 1. lack of transparancy 2. unintended consequences