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
    • 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


No comments have yet been made

Similar Economics resources:

See all Economics resources »See all Behavioural Economics resources »