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Economics 1.2.1

Economics- Edexcel 1.2.1

TermDefinition
Maximum utility the concept that individuals and organizations seek to attain the highest level of satisfaction or benefit from their economic decisions
Rational consumers make choices with the aim of maximising utility from purchasing and consuming goods and services using a limited budget
Transitive preferences a person, group, or society that prefers choice option x to y and y to z must prefer x to z
Part 1 of the rational choice model consumers choose independently
Part 2 of the rational choice model a consumer has consistent tastes and preferences
Part 3 of the rational choice model people can gather complete information on the alternatives available in the market
Part 4 of the rational choice model consumers make an optimal choice given their preferences
The rational rule you should continue doing something until the marginal benefit equals the marginal cost
Marginal a little more or less of something
Bounded rationality when consumers have limited attention, knowledge and ability to understand complex decisions
Incentives for competitive markets to work efficiently economic agents(consumers and producers) must respond to price signals in the market
Information gaps when consumers have insufficient knowledge to make an optimal decision
Invisible hand of the market Adam Smith described how the invisible or hidden hand of the market operated in a competitive market through the pursuit of self-interest to allocate resources in society’s best interest
Irrational behaviour any decision that goes against or counter to logic
Marginal private benefit the benefit to an individual of consuming an extra unit
Marginal private cost internal cost to the consumer of buying another unit
Marginal utility when marginal utility is zero, the next unit consumed adds nothing to your total satisfaction
Rational choice involves the weighing up of costs and benefits and trying to maximise the surplus of benefits over costs
Rationality using all information to make optimal choices based on marginal benefits and marginal costs
Utility a measure of the satisfaction that we get from purchasing and consuming a good or service
Utility maximisation the assumption that consumers behave rationally in allocating their limited budget between different products to maximise total satisfaction from their purchases
Created by: jessharris
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