Definitions

Consumer rationality

Assumes that individuals use rational methods to make sensible choices, such as choosing the products that offer the best value for money

Utility Maximisation

Assumes that people decide on the option that gives them the highest level of utility

Perfect Information

Assumes that decision makers have equal and easy access to information in order to make well-informed choices or decisions

Adverse selection

 A form of opportunistic behaviour that refers to the undesired decisions or results that occur when buyers and seller have access to asymmetric information.

Moral Hazard

The actions people take after they have entered into a transaction that make the other party to the transaction worse off

Asymmetric information

Where one party in an economic transaction has access to more or better information than the other part

Tragedy of the commons

Where private individuals exploit common resources unsustainably out of self interest, ultimately leading to the depletion of the source.