Consumer Behaviour - Micro

Question 1

What is individual economic decision making influenced by?

Answer 1

• rationality
• incentives
• marginal utility

Question 2

What is being rational?

Answer 2

When economic agents are able to consider the outcome of their choices and recognise the net benefits of each one

Question 3

How can consumers act rationally?

Answer 3

Maximising utility

Question 4

How can producers act rationally?

Answer 4

Maximising profits

Question 5

How can workers act rationally?

Answer 5

Balancing welfare at work with consideration of pay and benefits

Question 6

How can governments act rationally?

Answer 6

Placing the interests of people first in order to maximise welfare

Question 7

What is utility?

Answer 7

The satisfaction gained from consumption

Question 8

What is marginal utility?

Answer 8

Additional utility gained from consumption

Question 9

What is total utility?

Answer 9

• Marginal utility of each unit consumed added together
• Total utility keeps increasing even while marginal utility is decreasing

Question 10

What is the law of diminishing marginal utility?

Answer 10

• as additional products are consumed, the utility gained from the next nit is lower than the utility gained from the previous unit
• this explains why the demand curve slopes downward

Question 11

What is marginal benefit?

Answer 11

Additional utility gained from each extra unit

Question 12

What is marginal cost?

Answer 12

Extra cost by producing one additional unit