Behavioural Economics
- Created by: DanTstudy
- Created on: 22-09-19 17:46
View mindmap
- Behavioural Economics
- Utility Maximisation
- economic agents decide their market plans so as to maximise the utility or welfare obtained
- EXAMPLE: households are assumed to wish to maximise the utility or welfare obtained from the set of goods and services consumed
- if all goods were free, consumers would maximise utility by obtaining goods that obtain utility. up to the pint of satisfaction
- any further consumption would yield disutility at the margin
- economic agents decide their market plans so as to maximise the utility or welfare obtained
- Constraints which restrict the choices made by the consumers
- Limited Income: income spent on one good, cannot be spent on another
- A Given Set of Prices: consumers are typically price takers who cannot influence price by their own action
- The Budget Constraint: the consumer's budget limits their freedom and a consumer can only buy one or more good by giving up consumption of another - opportunity cost
- Limited Time Available: choices often need to be made in a limited time frame
- Utility Theory
- The Point of Satisfaction is the 5th slice of pizza which has 0 marginal utility
- Marginal Utility is the additional welfare, satisfaction or pleasure gained from consuming one extra unit of good
- The Hypothesis of Diminishing Marginal Utility
- Utility is the satisfaction an individual gains from consuming a good or service
- What is it?
- it is a branch of economic research that adds elements of psychology to traditional models
- it is done in attempts to better understand decision-making by economic agents
- inconsistent unit pricing
- supermarkets use behavioural insights to encourage consumers to spend more
- loss leaders
- it is a branch of economic research that adds elements of psychology to traditional models
- Utility Maximisation
Comments
No comments have yet been made