Behavior Economics Flashcards
What is economics?
how society allocates scarce resources and goods
What are resources?
inputs (labor, capital, and land) that society uses to produce output
What are goods?
provided by barbers, doctors, and police can be clothes, food, or housing
What is production?
converting inputs to outputs
What is the driving force of economics?
scarcity
What is market?
allowing trade with one another
What is a market system?
the collection of markets and their relationships
What is demand?
willingness to buy a good
What is supply?
willingness to supply a particular good
What is the demand curve?
inverse relationship between supply and demand and the curve represents the demand schedule
What causes demand change?
- changes in price
- income
- preference
- expectations
What causes supply change?
- change in prices
- changes in the prices of inputs (increase or decrease of raw material)
- cahnges in technology (is it cheap or expensive to make)
Classical Economic Theory
economy will self-regulate and naturally lean to equilibrium
(self-adjustment mechanisms)
What is opportunity cost?
benefits that are given up by choosing an alternative
(basic decision making)
Characteristics of Classical Economics
- assume everyone is rational
- all know preference
- consumers preference and decision path are independent
- consumer make mistakes
- people use system 2 thinking
- takes time
Characteristics of Behavioral Economics
- not everyone is rational
- people’s preferences shine
- preferences are path dependent
- people make mistakes
- both system 1 and system 2 are used
System 1 Thinking
automatic and effortless thinking
- skilled decision making because of prior experience
System 2 Thinking
slower, effortless thinking
- can tell you in great detail how you make decisions
What is the Endowment Effect?
people value something more highly once they have it
What is framing?
gains and losses are viewed differently
What is the thought process behind classical economics?
“you can see through this and choose based on the facts regardless of how presented”
True or False: People usually do not regard healthcare rationally
True
Inelastic demand
when services are vital consumers will not be price sensitive
Universal demand
healthcare is used by all
True or False: Within healthcare, illness is predictable
False
provider/supplier- induced demand:
physicians are in a unique position because they can control supply and demand for goods and services
market forces
an example of transparency of information
What are some healthcare incentives?
- population size
- duration of treatment
- intensity of services
What is efficiency?
the lowest cost per unit output; best allocation of resources that optimize productivity
What is efficacy?
how a product works; positives outweigh the negatives
What is effectiveness?
how a product works in the real world in those individuals for whom it was intended
