2.1

• Rational behaviour definition

  Acting in pursuit of self-interest, which for a consumer means attempting to maximise welfare, satisfaction or utility gained from the goods or services consumed
• when making economic decisions, consumers aim to maximise their utility and firms aim to maximise profits
• utility definition

  satisfaction or economic welfare an individual gains from consuming a good or service
• marginal utility definition

  the additional welfare, satisfaction or pleasure gained from consuming one extra unit of a good or service
• why is the demand curve downward sloping?

  because of diminishing marginal utility - consumer surplus generally declines with extra units consumed because the extra unit generates less utility
• Maximisation for consumers is when consumers aim to generate the greatest utility possible from an economic decision
• what is the assumption about economic agents ?

  they only act in their own interests
• price determines whether another unit of consumed of a particular good or whether a different good is consumed to maximise utility
• hypothesis of diminishing marginal utility definition

  for a single consumer, the marginal utility derived from a good or service diminishes for each additional unit consumed
• What does ‘making decisions at the margin’ mean in economics?

  Means weighing the extra benefit of one more unit against the extra cost of it
• why is marginal analysis important?

  helps consumer and producers make choices that maximise satisfaction or profit by comparing marginal benefits and marginal costs
• when should someone stop consuming a good?

  when marginal cost is greater than the marginal benefit
• a utility-maximising consumer must choose to consume/demand a good up to the point which?

  marginal utility = price