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A Level Economics > 2-Individual economic deision making > Flashcards

2-Individual economic deision making Flashcards

1
Q

What is meant by ‘rational behaviour’ of the consumer?

A

When individuals or households attempt to maximise their welfare and advance their private interests.

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2
Q

When individuals or households attempt to maximise their welfare and advance their private interests.

What is this the definition of?

A

‘Rational behaviour’ when referring to consumers.

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3
Q

What is meant by ‘utility’?

A

The satisfaction or economic gain made from consuming a good or service.

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4
Q

The satisfaction or economic gain made from consuming a good or service.

What is this definition referring to?

A

Utility

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5
Q

What is meant by ‘marginal utility’?

A

The additional satisfaction or gain made from consuming one extra unit of a good or service.

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6
Q

The additional satisfaction or gain made from consuming one extra unit of a good or service.

What is this definition referring to?

A

‘Marginal utility’

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7
Q

What is the ‘hypothesis of diminishing marginal utility?

A

That for a single consumer the marginal utility derived from consuming a good diminishes with each additional unit consumed.

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8
Q

That for a single consumer the marginal utility derived from consuming a good diminishes with each additional unit consumed.

What is this definition referring to?

A

The ‘hypothesis of diminishing marginal utility’

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9
Q

What is ‘satiation’?

A

The point at which no more utility can be derived from consuming more goods or services.

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10
Q

The point at which no more utility can be derived from consuming more goods or services.

What is this statement a definition of?

A

‘Satiation’

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11
Q

What are the constraints regarding maximisation of utility?

A

1) Limited income
2) Given set of prices
3) Budget constraint
4) Limited time available

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12
Q

Who established the ‘paradox of value’?

What is it?

A

Adam Smith (1723-1790)

The diamonds and the water paradox.

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13
Q

What is asymmetric information?

A

When one party to a transaction has less info relative to the other party.

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14
Q

When one party to a transaction has less info relative to the other party.

What is this a definition of?

A

Asymmetric information

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15
Q

What is ‘behavioural economics’?

A

A method of economic analysis that applies psychological insights into human behaviour to explain how individuals make economic decisions.

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16
Q

A method of economic analysis that applies psychological insights into human behaviour to explain how individuals make economic decisions.

What is this a definition of?

A

‘Behavioural economics’

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17
Q

What is the name of the team that was set up in 2010 by the U.K. government to assist in making policy decisions based on behavioural economics?

A

The Behavioural Insights Team (BIT)

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18
Q

What is the Behavioural Insights Team?

A

A team set up in 2010 by the U.K. government to inform policy making based on behavioural economics.

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19
Q

How does behavioural economic theory differ from traditional economic theory?

A

Behavioural economics observes the behaviour and proposes a hypothesis.

Traditional economics proposes a hypothesis and observes evidence to prove or disprove the hypothesis.

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20
Q

What is ‘bounded rationality’?

A

When decision making, individuals are limited by:
1) Limited info available

2) Limitations of their mind
3) Finite time-in which to make decision

21
Q

When decision making, individuals are limited by:
1) Limited info available

2) Limitations of their mind
3) Finite time-in which to make decision

What is this definition referring to?

A

‘Bounded rationality’

22
Q

What is ‘bounded self-control’?

A

This refers to the natural limit of discipline inherent within individuals in an economic context-such as New Years resolutions.

23
Q

This refers to the natural limit of discipline inherent within individuals in an economic context-such as New Years resolutions.

What is this referring to?

A

‘Bounded self-control’

24
Q

What is meant by a ‘cognitive bias’?

A

A systematic error in thinking that affects the decisions that individuals make.

25
Q

A systematic error in thinking that affects the decisions that individuals make.

What is this a definition of?

A

‘Cognitive bias’

26
Q

What is the ‘availability bias’?

A

When an individual bases a decision on recent or easily-recallable events whether or not this is an accurate estimate of the truth.

27
Q

When an individual bases a decision on recent or easily-recallable events whether or not this is an accurate estimate of the truth.

What is this a definition of?

A

The ‘availability bias’

28
Q

What is meant by ‘anchoring’ when referring to decision making?

A

Anchoring is a cognitive bias describing the tendency of individuals to measure subsequent decisions from the first set of info they are given.

29
Q

Is a cognitive bias describing the tendency of individuals to measure subsequent decisions from the first set of info they are given.

What is this the definition of?

A

Anchoring (a cognitive bias)

30
Q

What are ‘social norms’?

A

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

31
Q

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

What is this a definition of?

A

‘Social norms’

32
Q

What are ‘nudges’?

A

Factors that encourage people to act in a certain way or comply with certain desirable social norms.

33
Q

Factors that encourage people to act in a certain way or comply with certain desirable social norms.

What is this a definition of?

A

‘Nudges’

34
Q

What is ‘altruism’?

A

Concern for the welfare of others.

35
Q

Concern for the welfare of others.

What is this a definition of?

A

‘Altruism’

36
Q

What is ‘fairness’?

A

The quality of being impartial, just or free of favouritism.

37
Q

The quality of being impartial, just or free of favouritism.

What is this a definition of?

A

‘Fairness’

38
Q

What is meant by ‘choice architecture’?

A

The way in which choices are presented to consumers in such a way that are encouraged to make some choices of others. Such as having healthier foods more convenient in a canteen.

39
Q

The way in which choices are presented to consumers in such a way that are encouraged to make some choices of others. Such as having healthier foods more convenient in a canteen.

What is this a definition of?

A

‘Choice architecture’

40
Q

What is ‘default choice’?

A

An option that is selected automatically unless an alternative is specified.

41
Q

An option that is selected automatically unless an alternative is specified.

What is this a definition of?

A

‘Default choice’.

42
Q

What is meant by ‘framing’?

A

This means presenting info in such a way that it influences people’s judgements or decisions. Like when a politician ‘frames’ statistics to support their case.

43
Q

This means presenting info in such a way that it influences people’s judgements or decisions. Like when a politician ‘frames’ statistics to support their case.

What is this a definition of?

A

‘Framing’

44
Q

What is a ‘mandated choice’?

A

Where people are required, often by law, to make a choice.

45
Q

Where people are required, often by law, to make a choice.

What is this a definition of?

A

‘Mandated choice’

46
Q

What is meant by ‘restricted choice’?

A

When the number of choices are narrowed down so as not to overwhelm the decision maker. e.g. government policy that energy companies should make comparing quotes easier.

47
Q

When the number of choices are narrowed down so as not to overwhelm the decision maker. e.g. government policy that energy companies should make comparing quotes easier.

What is this a definition of?

A

‘Restricted choice’

48
Q

What is the difference between a ‘nudge’ and a ‘shove’?

A

Nudges are (ENCOURAGING) generally based on behavioural economics and encourage people to make socially beneficial choices.

Shoves are (INSTRUCTIVE) generally based on traditional economic decision making and include sanctions and taxes or even incentives to actively encourage positive decision making.

49
Q

What were the main behavioural insights made by the BIT regarding encouraging charitable giving in a document dated 2013?

A

1) Make it easy: opt-out rather than in etc.
2) Attract attention
3) Focus on the social: Peer pressure and celebs etc.
4) Timing matters: December rather than Jan etc.

A Level Economics (5 decks)

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