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Economics 1.2.1
Economics- Edexcel 1.2.1
| Term | Definition |
|---|---|
| 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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