4.1.2

Question 1

define economic agent

Answer 1

someone who makes decisions to allocate scare resources

Question 2

define utility

Answer 2

satisfaction from consuming a quantity of a good/service

Question 3

margin utility and price equation

Answer 3

MU of A/Price of A = MU of B/Price of B = MU of C/Price of C

Question 4

define income

Answer 4

money received regularly from selling your labour

Question 5

define wealth

Answer 5

abundance of valuable assets/possessions/money held by someone at a point in time

Question 6

define unearned income

Answer 6

income from private means instead of work

e.g. rent, dividens

Question 7

define consumption

Answer 7

the act of using up a resource

Question 8

define interest

Answer 8

charge for the privilege of borrowing money

Question 9

define marginal utility

Answer 9

change in utility from an increase in consumption of a good

Question 10

how to work out marginal utility on a table

Answer 10

previous total utility + marginal utility in the same row

Question 11

CHECK TU + MU GRAPH CURVES

Answer 11

CHECK FOLDER

Question 12

what do economic agents do?

Answer 12

behave rationally -> act consistently with interests
has complete knowledge
acts solely in self interest
aims to maximise personal satisfacition

Question 13

how can satisfaction be assessed

Answer 13

by the price someone is willing to pay for a product

Question 14

what does measuring marginal utility allow us to do

Answer 14

derive the demand curve

Question 15

how can you tell if total utility has increased

Answer 15

if marginal benefit exceeds marginal cost

Question 16

how can you tell if total utility has decreased

Answer 16

if marginal benefit is below marginal cost

Question 17

define total utility

Answer 17

total satisfaction from consuming a given total quantity of a good/service

Question 18

unit for utility?

Answer 18

util

Question 19

define perfect info

Answer 19

info available to economic agent is accurate + economic agent has all info needed to make a rational decisions

Question 20

define asymmetric info

Answer 20

1 economic agent involved in a transaction knows more than the other agent
imbalance of power affects transaction

Question 21

define moral hazard

Answer 21

when an economic agent takes more risks because someone else is likely to bare the full costs of these risks

Question 22

define market failure

Answer 22

when operation of the free markets leads to mis-allocation of resources

Question 23

define information failure

Answer 23

some/all economic agents involved in an economic transaction don’t have perfect knowledge

Question 24

how can the internet help overcome problems from asymmetric info?

Answer 24

price comparison websites

use to find extra + a range of info

Question 25

define bounded rationality

Answer 25

limits of info/time/ability to make rational decisions

Question 26

define anchoring

Answer 26

tendency to rely too much on a single piece of info (e.g. the first piece we get) when making decisions

Question 27

define availability bias

Answer 27

when people make judgements on the probability of events by how easy it is to recall examples of such events

Question 28

define social norm

Answer 28

belief held by a group/groups of people with whom we associate how we should behave in a given situation

Question 29

define framing

Answer 29

tendency for people to be influenced by the context in which a choice is presented

Question 30

define choice architecture

Answer 30

how choices can be influenced by the way different options are presented to the decision maker

Question 31

define nudge

Answer 31

changing people’s behaviour in a predictable manner without removing freedom of choice

Question 32

examples of biases

Answer 32

anchoring
availability
social norms
framing

Question 33

define default choices

Answer 33

option consumer “selects” if they do nothing

automatically enrolled if they take no action

Question 34

define restricted choices

Answer 34

restricted no. of choices consumers can make
they acc make a decision
results in efficient outcome

Question 35

define mandated choices

Answer 35

consumers state their decision in advance