Utility = the satisfaction an individual gains from consuming good/service Marginal utility = the additional satisfaction gained from consuming one extra unit of a good
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Law of diminishing utility
as quantity consumed increases, marginal utility gained from each extra unit decreases
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imperfect information
where info is missing, so an informed decision can't be made - leads to misallocation of resources e.g. consumers pay too much/little, and firms may produce incorrect amount
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symmetric info & Asymmetric info
symmetric info = consumers & producers have perfect info to make their decisions - leads to efficient allocation of resources asymmetric info = when there is unequal knowledge between consumers & producers - leads to misallocation of resources
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Behavioural economics
disputes idea that consumers are always rational & will always look to maximise utility, instead emotional/social/psychological factors play key role in influencing consumer behaviour e.g. cognitive biases like social norms
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Bounded rationality & bounded self-control
bounded rationality = when making a decision, consumers rationality limited by TIC Bounded Self-control = when individual lacks self-control to act in what they see as their self-interests
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availability bias
process of an individual making judgements about the likelihood of future events, according to how easy it is to recall similar events
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anchoring
Human tendency to rely on first piece of info they are given - causes consumers to be biased towards it when subsequent info is given
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social norms
patterns of behaviour considered socially acceptable within society
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altruism & fairness
altruism = act of being selfless and considerate towards other people, even if it may cause individual to suffer as consequence e.g. financial loss fairness = treating everyone equally - giving time, respect & not taking advantage of them
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choice architecture policies
the way choices are presented to consumers - govt. policy can lead people into making particular choices
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framing & nudges (CAPs)
Framing = consumers being influenced by context of how choice is presented, through word choices nudges = aim to change behaviour without taking away freedom of choice
default choice = when a consumer is automatically enrolled into a system restricted choice = offering a consumer limited no. of options mandated choice = when consumers are required to state whether they wish to participate in an action
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Other cards in this set
Card 2
Front
as quantity consumed increases, marginal utility gained from each extra unit decreases
Back
Law of diminishing utility
Card 3
Front
where info is missing, so an informed decision can't be made - leads to misallocation of resources e.g. consumers pay too much/little, and firms may produce incorrect amount
Back
Card 4
Front
symmetric info = consumers & producers have perfect info to make their decisions - leads to efficient allocation of resources asymmetric info = when there is unequal knowledge between consumers & producers - leads to misallocation of resources
Back
Card 5
Front
disputes idea that consumers are always rational & will always look to maximise utility, instead emotional/social/psychological factors play key role in influencing consumer behaviour e.g. cognitive biases like social norms
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