4.1.2.1 CONSUMER BEHAVIOR

What does utility measure?

Satisfaction

What does LMI stand for?

Labor market informtion

What is the individual demand curve?

Illustrates the relationship between quantity demanded and price for an individual consumer

What is the market demand curve?

Shows quantity that all consumers, or market as a whole, are willing and able to buy at each price

What type of language is "extension and contraction"?

Tier 3

What is an extension of demand?

Demand increases

What is a contraction of demand?

Demand has decreased

What will cause a demand curve to shift?

Income, tastes, preferences, the price of substitutes, population size

Which is the independent variable? (THE BOSS)

The price (Y axis)

What is the dependent variable?

The quantity (X axis)

Which axis shifts and which moves along?

Price - shifts

Quantity - moves along

What is rational behavior?

Based on clear logic and reason, not emotion or instinct

Give some examples of rational behavior?

Buying a mortgage or a car

Give some exmaple of irrational behavior?

Buying stuff in the TK Max queue

Is "thinking quick" rational or irrational?

Irrational

Is "thinking slow" rational or irrational?

Rational

How do shops try to disturb people's rationality?

Adjusting heating, lightening, music (beats), product placement

Define utility

• satisfaction

• measured in utils

• welfare economic satisfaction

Define marginal utility

• the satisfaction of buying the next one

Who always operates in marginal terms? Why?

Businesses - to ensure they remain in control

Does the utility we enjoy affect our willingness to pay for a product?

Yes

The more satisfaction you get out of a product, the more you are likely to pay for it (it actually determines the maximum price consumers will pay)

On a graph what is the maximum price consumers will pay called?

Consumer surplus

Give an example of third degree price discrimination (link to genders)? (Based on willingness and ability to pay)

Nightclub

• girls will find somewhere cheaper (price elastic)

• boys will pay the high price (price inelastic)

What is first degree price discrimination?

All customers pay a different price

Give an exmaple of first degree price discrimination?

Kitchens, bathrooms, fitted wardrobes

What is the law of diminishing marginal utility?

As a person consumes more units of a particular good or service while keeping the consumption of other products constant, the additional satisfaction or marginal utility gained from each additional unit will decrease

Would the total satisfaction go up or down when consuming slices of pizza?

Up (as satisfaction is still positive), even though satisfaction is decreasing

What curve does this link to?

“Marginal utils decreases as you consume more"

The demand curve (you still get satisfaction on the 6th slice of pizza, just less than the 5th)

What is disutility?

Refers to the negative feelings, discomfort, or displeasure associated with certain activities, goods or services

Give 2 examples of disutility

Invasive surveillance

Damaging effects of social media

When is total utility maximized?

When marginal utility = 0

If the total utility on slice 6 of the pizza is 53, and slice 7, do you consume another?

Yes - as the satisfaction is the same

What do you do for maximizing utility with multiple products?