exexcel a level economics - definitions

what is total utility

The overall satisfaction gained from consuming a certain quantity of a good or service

what is marginal utility

The additional satisfaction gained from consuming one more unit of a good or service

what is demand

The quantity of a good or service that consumers are willing and able to purchase at various prices over a given period of time

what is effective demand

Demand backed by the ability to pay. If someone wants a product but cannot afford it, this is not effective demand

what is the rational choice model

an idea that assumes consumers choose independently and have fixed and consistent taste, always make optimal choices given their preferences

what is the rational action theory

people maximise their own utility by making decisions based on objective calculations

what is kahneman’s theory

system 1 is based on common sense, estimates and emotional responses (heuristics)

system 2 is based on thoughts and reflections to avoid bias (factual based)

what is intuition

using feelings or instincts of a consumer and isnt based on facts

what is logic

using facts and statistics to make a decision

what is the rational decision making model

a model that outlines a problem and the solution, followed with evaluations and how to carry out as well as evaluate that decision

what is the administrative model

a model that assumes : the first satisfactory alternative is chosen, the world is simple, need to be comfortable making decisions >considering every alternative, heuristics can help with decision making

what is heuristics

mental shortcuts that simplify and shorten the time taken to make a decision

what is the law of diminishing marginal utility

as an extra unit of the good is consumed the Mu falls

what is a market

where buyers and sellers of a product come together and a price is agreed

what is the product market

exchange of goods and services

what is the commodity market

where raw materials are bought and sold

what are hard commodities

extracted goods e.g. oil and gold

what are soft commodities

those which are grown and include items such as wheat or sugar

what does PIRATES stand for

population, income, related goods, advertising, tastes and fashion, expectations and seasons

what are the 3 types of demand

derived, effective and composite