rational decision making

Cards (8)

what is utility
satisfaction
what is marginal utility
the additional satisfaction or utility gained from consuming one more unit of a good or service
what is the law of diminishing marginal utility
the additional satisfaction or marginal utility gained from each additional unit will decrease
what do consumers maximize when making a choice
their overall utility
what do firms aim to maximize when making choices
their profit
how does falling marginal utility relate to demand
as marginal utility falls with each subsequent unit consumed, consumers are not willing to pay at the old price so demand will fall. However is price drops, each additional unit becomes more valuable in terms of the satisfaction it provides.
what is dis-utility
the discomfort associated with certain goods or services
what is the rational choice theory
assumes that consumers always behave rationally in allocating their limited budget between different products to maximise total satisfaction from their purchases.