Consumer Theory Class #5

A set of vocabulary flashcards derived from Consumer Theory lecture notes, focusing on key concepts related to consumer behavior and decision-making.

Utility Theory

A theory that answers why people behave as they do, based on self-interest.

Marginal Utility

The satisfaction gained from consuming one additional unit of a product.

Total Utility

The total satisfaction received from consuming a product.

Diminishing Marginal Utility

The principle that as more units of a good are consumed, the additional satisfaction from each new unit decreases.

Rational Choice

The decision-making process where individuals aim to maximize their satisfaction based on their available resources.

Income Effect

The change in consumption that results from increased effective wealth due to lower prices.

Substitution Effect

The change in consumption that results from a change in the relative price of goods.

Bounded Rationality

A concept where decision-making is rational but limited by cognitive limitations.

Altruism

The selfless concern for the well-being of others, increasing one's own utility.

Reciprocity

The idea that people get utility from rewarding good behavior and punishing bad behavior.

Over-optimism

The tendency to overestimate the likelihood of positive outcomes in the future.

Anchor Effect

The tendency for people to rely heavily on the first piece of information encountered when making decisions.

Counterproductive Regret

The negative impact of dwelling on past decisions, often leading to poor future choices.

Sunk Costs

Costs that have already been incurred and cannot be recovered, which should not influence future decisions.

Fungibility

The property of a good or asset whose individual units are essentially interchangeable.