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1.1 Consumer Behaviour (Utility maximisation (There are limits to utility…
1.1 Consumer Behaviour
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Utility: Total, Marginal and diminishing marginal.
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The law of diminishing marginal utility: for a single consumer the marginal utility derived from a good or service diminished for each additional unit consumed
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Utility maximisation
There are limits to utility maximisation meaning that sometimes consumers don't have to the choice to make most economically efficient decision
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A given set of prices: consumers are price takers and so have to pay the price presented and can't change this
The budget constraint: a consumer can only buy what fits within their budget, if considering all income is spent no saving and no borrowing meaning the consumer has to evaluate the opportunity cost of each decision.
Limited time available: even if goods were free there is still a limited number of goods that can be consumed at one time
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