Study Notes
Consumer behaviour in economics examines how individuals make decisions to allocate resources, often critiqued by behavioural economics for its assumptions of rationality.
- Consumer Rationality — Assumes consumers can rank preferences, are consistent in choices, and prefer more goods. Example: Choosing between two products based on preference and consistency.
- Utility Maximization — Consumers aim to get the most satisfaction from their purchases within their budget. Example: Buying a combination of goods that maximizes happiness.
- Perfect Information — Assumes consumers have all necessary information to make informed decisions. Example: Knowing all product details before purchase.
- Biases — Systematic patterns of deviation from norm or rationality in judgment. Example: Anchoring on initial prices when shopping.
- Nudge Theory — Influences consumer behavior without restricting choices. Example: Automatically enrolling people as organ donors unless they opt out.
Exam Tips
Key Definitions to Remember
- Consumer Rationality
- Utility Maximization
- Perfect Information
- Biases
- Nudge Theory
Common Confusions
- Assuming all consumers have perfect information
- Believing consumers always act rationally
Typical Exam Questions
- What are the assumptions of rational consumer choice theory? Consumers are rational, aim to maximize utility, and have perfect information.
- How do biases affect consumer choices? Biases like anchoring and framing lead to irrational decisions.
- What is nudge theory? A method to influence behavior without restricting choice.
What Examiners Usually Test
- Understanding of rational consumer choice assumptions
- Ability to explain biases and their impact on decisions
- Application of nudge theory in economic policy