Behavioural Economics Pt1 Flashcards
1
Q
What is the utility theory?
A
The utility theory states that economic agents will always look to maximise utility.
EG: firms maxing profit
2
Q
What is marginal utility?
A
This is the extra satisfaction derived from consuming 1 more unit.
3
Q
Why does utility decrease as quantity increases and explain this.
A
Because of the law of diminishing utility.
As quantity increases, the marginal utility derived from each extra unit decreases.
4
Q
Where is total utility maxed?
A
When marginal utility = 0
