Area of study 1(Thinking like an economist) The economic agents Flashcards
Chapter 2.1
Define an economic agent
The term “economic agent,” describes anyone, be it a group, organization, or person, who participates in an economy’s activity and makes key economic decisions.
Chapter 2.1
Define the “private sector.”
The private sector of economic agents refers primarily to producers and consumers in the economy that are separate from the government.
Chapter 2.1
Define the “public sector.”
The public sector of economic agents refers to all government bodies that make key decisions within the economy.
Chapter 2.1
Briefly outline the traditional economic viewpoint of consumers in the economy.
The traditional viewpoint of consumer behavior in an economy is that they’ll act rationally, meaning when they make key decisions (about purchasing goods and services) they’ll always aim to maximize their utility whilst minimizing their costs.
Chapter 2.1
Define “utility.”
The overall satisfaction a consumer receives from the consumption of a good or service.
Chapter 2.1
Define “perfect information.”
“Perfect information,” states that consumers are equipped with all required information when they make key economic decisions, including all the costs and benefits of a single decision.
Chapter 2.1
Define the law of “diminishing marginal utility.”
This law states that after each subsequent unit of a good or service is consumed by a consumer, the overall utility derived from that consumption will decrease after each purchase.
Chapter 2.1
List some factors that affect rational decision making by consumers.
Ethics: There exists some consumption that may be unethical despite maximizing utility. Including the consumption of meat.
Culture: Utility could be maximized from consumption, although certain cultures may condemn the consumption of certain goods or services.
Budget constraints: These constraints will mean consumers can only attain a limited level of utility when consuming goods and services as they have limited budgets.
Chapter 2.2
Define an incentive and a disincencitve.
An incentive encourages an economic agent to make a certain decision or to act in a specific way.
A disincentive discourages an economic agent from making a certain decision or acting in a certain way.
Chapter 2.2
Define an externality
An externality occurs when an economic decision made by a certain agent has an effect on another economic agent who didn’t make that decision.
Externalities can have both positive and negative effects on other economic agents.
Chapter 2.2
List the common measures used by the government to regulate consumer/producer decision-making.
Taxes:
Tax rebates:
Subsidies:
Regulations:
Chapter 2.2
Define both direct and indirect taxes.
Direct tax: A tax which applies to the income (money received from production) of workers.
Indirect tax: A tax which a consumer pays when they purchase a good or service.
Chapter 2.2:
Define a “tax rebate.”
A tax rebate reduces the tax paid by certain groups on their earned income.
Chapter 2.2:
Define a subsidy
A subsidy is a payment provided to individuals or businesses in the economy, which often has the purpose of maintaining low prices for certain goods and services produced.
Chapter 2.2:
Explain the purpose of regulations in the economy.
A regulation is a rule set by the government that impacts the function of markets in the economy.
