1. Individual Economic Decision Making

Question 1

Individual demand curve

Answer 1

Shows how much of a good or service the consumer plans to demand at different possible prices

Question 2

Law of Demand

Answer 2

As a goods price falls, more is demanded

Question 3

Shift of a demand curve

Answer 3

The movement of a demand curve to a new position

Question 4

Increase in demand

Answer 4

A rightward shift of the demand curve

Question 5

Decrease in demand

Answer 5

A leftward shift of the demand curve

Question 6

Extension of demand

Answer 6

Extension of demand an adjustment or movement down a demand curve following a fall in the goods price

Question 7

Contraction of demand

Answer 7

an adjustment or movement up a demand curve following an increase in the goods price

Question 8

Condition of demand

Answer 8

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

Question 9

Rational Behaviour

Answer 9

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

Question 10

Utility

Answer 10

The satisfaction or economic welfare an individual gains from consuming a good or service

Question 11

Marginal Utility

Answer 11

The additional welfare, satisfaction or pleasure gained from consuming one extra unit of a good

Question 12

Asymmetric information

Answer 12

When one party to a market transaction possess less information relevant to exchange than the other

Question 13

Bounded Rationality

Answer 13

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

Question 14

Bounded Self-control

Answer 14

Limited self-control in which individuals lack the self-control to act in what they see as their self-interest

Question 15

Cognitive bias

Answer 15

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

Question 16

Availability bias

Answer 16

Occurs when individuals make judgements about the likelihood of future events according to how easy it is to recall examples of similar events

Question 17

Anchoring

Answer 17

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

Question 18

Social norms

Answer 18

Forms or patterns of behaviour considered acceptable by a society or group within that society

Question 19

Nudges

Answer 19

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

Question 20

Altruism

Answer 20

Concern for the welfare of others

Question 21

Choice Architecture

Answer 21

A framework setting out different ways in which choices can be presented to consumers, and the impact of that presentation on consumer decision making

Question 22

Default choice

Answer 22

An option that is selected automatically unless an alternative is specified

Question 23

Mandated choice

Answer 23

People are required by law to make a decision

Question 24

Restricted choice

Answer 24

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.