1.2 How markets work Flashcards
What is marginal utility
The extra satisfaction gained from consuming the next unit
what is peer/ herd behaviour
when behaviour is based on peer effects/ social norms
e.g. buying branded trainers, phone
what is habitual behaviour
when behaviour is based on routine/ inertia
what is computational weakness
when behaviour is based on poor numeracy/ understanding
e.g. payday loans
what is margin
for the next unit
what is utility
the satisfaction or benefit derived from consuming gods
what can habits lead to
addiction and destructive behaviour which is exploited by firms
what does the neo-classical theory assume
that economical agents, such as individuals/ firms, make decisions in a rational way. so act in a way that maximises their benefits
what are rational economic agents able to do
able to rank the order of different economic outcomes in terms of their net benefits to them. The then act in a way that will maximise their net benefits
what do consumers seek to maximise
utility
what to producers seek to maximise
profits
what do governments seek to maximise
social welfare
what do workers seek to maximise
their welfare at work
e.g. salary, work-life balance
disadvantages of neo classical view
assumptions of the goals of economics agents can be simplistic
not every decision can be made in a rational way
reasons why consumers may not behave rationally
consideration of the influence of other peoples behaviour
the importance of habitual behaviour
consumer weakness at computation
