1. Individual Economic Decision Making Flashcards
Individual demand curve
Shows how much of a good or service the consumer plans to demand at different possible prices
Law of Demand
As a goods price falls, more is demanded
Shift of a demand curve
The movement of a demand curve to a new position
Increase in demand
A rightward shift of the demand curve
Decrease in demand
A leftward shift of the demand curve
Extension of demand
Extension of demand an adjustment or movement down a demand curve following a fall in the goods price
Contraction of demand
an adjustment or movement up a demand curve following an increase in the goods price
Condition of demand
A determinant of demand, other than the goods own price, that fixes the position of the demand curve. A change in one or more of the conditions of the demand leads to a shift of demand
Rational Behaviour
Acting in pursuit of self-interest, which for a consumer means attempting to maximise the welfare, satisfaction or utility gained from the goods and services consumed
Utility
The satisfaction or economic welfare an individual gains from consuming a good or service
Marginal Utility
The additional welfare, satisfaction or pleasure gained from consuming one extra unit of a good
Asymmetric information
When one party to a market transaction possess less information relevant to exchange than the other
Bounded Rationality
When making decisions an individuals rationality is limited by the information they have, the limitations of their minds, and the finite amount of time available in which to make decisions
Bounded Self-control
Limited self-control in which individuals lack the self-control to act in what they see as their self-interest
Cognitive bias
A mistake in reasoning or in some other mental thought process occurring as a result of, for example, using rules-of-thumb or holding onto one’s preferences and beliefs regardless of contrary information
Availability bias
Occurs when individuals make judgements about the likelihood of future events according to how easy it is to recall examples of similar events
Anchoring
A cognitive bias describing the human tendency when making decisions to rely too heavily on the first piece of information offered. Individuals use an initial piece of information when making subsequent judgements
Social norms
Forms or patterns of behaviour considered acceptable by a society or group within that society
Nudges
Factors which encourage people to think and act in particular ways. Nudges try to shift group and individual behaviour in ways which comply with desirable social norms
Altruism
Concern for the welfare of others
Choice Architecture
A framework setting out different ways in which choices can be presented to consumers, and the impact of that presentation on consumer decision making
Default choice
An option that is selected automatically unless an alternative is specified
Mandated choice
People are required by law to make a decision
Restricted choice
Offering people a limited number of options so that they are not overwhelmed by the complexity of the situation. If there are too many choices, people may make a poorly thought-out decisions or not make any decision.
