Economics 6

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  • Created by: Gabrielle
  • Created on: 29-12-13 17:47
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  • The Consumer
    • Total Utility
      • Rises at first as additional units are consumed, reaches a maximum and then begins to fall
    • Marginal utility
      • The addition to satisfaction from the consumption of successive units
      • Marginal utility falls as consumption increases
    • The consumer’s budget – the bundles of goods the consumer can afford with a given income
    • Inferior Goods
      • When the budget constraint shifts outwards the consumer buys less of the good
    • Behavioral Economics
      • Consumers use rules of thumb
        • Heuristics
          • Anchoring – using familiarity to make decisions
          • Availability – assessing risks of the likelihood of something happening
          • Representativeness – decisions made based on how representative something is to a stereotype
      • Reluctant to change their minds
    • Expected utility theory
      • Preferences can and will be ranked by consumers
    • Branding & Advertising
      • Critique
        • Waste of resources
        • Psychological not informative
        • Creates unwanted desire
        • Impedes competition
      • Defence
        • Provides information
        • Signal of quality
        • Information means more competition


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