Questions and Answers
What is the primary assumption underlying the concept of opportunity cost in consumer behaviour?
What is the definition of a rational consumer?
What is the characteristic of an economic good?
What is the law that states that as a consumer consumes more of a good or service, the additional utility derived from each additional unit will decrease?
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What is the primary goal of a rational consumer?
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Under which condition does the Law of Diminishing Marginal Utility not apply?
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What is assumed to remain constant in the Law of Diminishing Marginal Utility?
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What happens to the marginal utility as a consumer consumes more units of a good?
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When does the Law of Diminishing Marginal Utility take into account the time factor?
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What is the consequence of the Law of Diminishing Marginal Utility?
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Study Notes
Assumptions Underlying Consumer Behaviour
- Consumers face a fundamental problem: unlimited wants vs limited incomes, leading to the need for choice and decision-making.
- Opportunity cost is a direct consequence of making choices: every decision to buy one product means giving up another.
Rational Consumer
- A rational consumer is characterized by reasonable and logical thinking in purchasing decisions, rather than emotional influences.
- Rational consumers aim to maximize utility when making purchasing decisions, as dictated by economic theory.
Economic Goods
- Economic goods possess three key characteristics:
- They provide utility or satisfaction to the consumer.
- They are relatively scarce, which is why they command a price.
- They are transferable from one person to another.
Law of Diminishing Marginal Utility
- Consumers are subject to the Law of Diminishing Marginal Utility, which states that the additional satisfaction derived from consuming one more unit of a product decreases as consumption increases.
Law of Diminishing Marginal Utility
- The law states that as a consumer consumes more units of a good, the extra satisfaction/marginal utility derived from each additional unit will eventually decline.
Assumptions of the Law
- The law does not apply to addictive or medical goods.
- The law assumes that no time has passed between the consumption of each unit.
- The law assumes that the consumer's income has not changed during the consumption of the good.
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Description
This quiz covers the fundamental assumptions underlying consumer behaviour, including limited incomes, unlimited wants, and rational decision-making. It tests your understanding of how consumers make purchasing decisions and the principles that guide their behaviour.
