1. Individual economic decision making Flashcards
Condition of demand
A determinant of demand, other than good’s own price, that fixes the position of the demand curve. A change in one or more of these conditions leads to a shift in demand
Extension of demand
An adjustment or movement down a demand curve following a fall in the good’s price
Contraction of demand
An adjustment or movement up a demand following an increase in the good’s price
Rational behaviour
Acting in pursuit of self interest, which for a consumer means attempting to maximise the welfare, satisfaction or utility gained from the foods 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
Hypothesis of diminishing marginal utility
For a single consumer the marginal utility derived from a good or service diminishes for each additional unit consumed
Asymmetric information
When one party to a market transaction possesses less information relevant to the exchange than the other
Behavioural economics
A method of economic analysis that applies psychological insights into human behaviour to explain how individuals make choices and decisions
Rule of thumb
A rough and practical method or procedure that can be easily applied when making decisions
Bounded rationality
When making decisions, an individual rationality is limited by the information they have, the limitations of their minds and the finite amount of time 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 judgments 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 1st piece of information offered. Individuals use an initial piece of information when making subsequent judgements
