Behavioural Economics

Question 1

What are the three principles?

Answer 1

1. People respond to incentives
2. There is no such thing as a free lunch
3. People face trade offs

Question 2

What is principle 1?

Answer 2

People respond to incentives.

An incentive is something that motivates a individual to perform an action

It may be a punishment or a reward.
If you reward a behaviour people will do more of it with greater intensity.
If you are to penalise something, people will do less of it.

Question 3

Give an example for principle number 1

Answer 3

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Question 4

What is principle 2?

Answer 4

There is no such thing as a free lunch.

To get one thing we like we usually have to give up another thing that we like. More of one thing means less of another.
We usually give up things such as use of time, money or resources to result in the want.

Question 5

Give an example of principle 2

Answer 5

If the government spends an additional dollar on education then there will be one less dollar for something else provided by the government

Question 6

What is the second meaning to principle 2?

Answer 6

When someone offers you something for free, he or she usually expects something back in return.
There is always a catch

Question 7

Give an example for the second Meaning of principle 2

Answer 7

If you run 2km using the maccas app you will get a free maccas breakfast

Question 8

What is principle 3?

Answer 8

People face trade-offs
This means that to get one thing we like, we must sacrifice something for it. We trade one goal for another. As a result of scarcity, we need to make choices.

Question 9

Give an example of principle 3

Answer 9

How you spend your time, how your family decides to spend income

Question 10

What are leakages?

Answer 10

A withdrawal from the economy. Leakages reduce the flow of income between households and firms.

Question 11

What are injections?

Answer 11

Increase the flow of income between households and firms

Question 12

Explain the circular flow diagram

Answer 12

Households own all resources. They provide these resources to firms. The resources are then used by firms to produce goods and services. For lending their resources to firms, households receive an income,e. They use this income to buy goods and services, this is called consumption.

Question 13

Define employment

Answer 13

Those people who are fifteen years and over who currently work at least one hour per week.

Question 14

Define unemployment

Answer 14

The proportion of people, 15 years and over who are willing and able to work, but cannot find a job. They are actively seeking a job.

Question 15

What is the labour force?

Answer 15

The number of people who are either employed or they are actively seeking a job.

Question 16

What is the participation rate equation?

Answer 16

Participation rate = labour force / working age population x 100

Question 17

What is the unemployment rate equation?

Answer 17

Unemployed = unemployed / labour x 100

Question 18

What is the labour force equation?

Answer 18

Labour force = unemployed + employed

Question 19

State two reason why the official rate of unemployment does not provide a truly accurately measure of unemployment?

Answer 19

Hidden unemployment

Underemployment

Question 20

Explain what hidden unemployment is.

Answer 20

Refers to people who have given up looking for a job as they will not be able to get a job

Question 21

Explain what underemployment is.

Answer 21

People who are working part time but would like to work full time

Question 22

What are the 5 types of unemployment?

Answer 22

Cyclical 
Structural
Seasonal
Frictional
Hard core

Question 23

What is cyclical unemployment?

Answer 23

Occurs during fluctuations in the economy cycle. When there is a downturn in the economy the level of demand in the economy falls resulting in a reduction of the level of goods, and so less workers are required to produce goods and services

Question 24

What is structural unemployment?

Answer 24

As a result of improvement in technology or making third world countries do it instead as it is efficient and cheaper.

Question 25

What is frictional unemployment?

Answer 25

When a person is between jobs, or moving from one job to another, which they may go through a short period of unemployment

Question 26

What is seasonal unemployment?

Answer 26

Where a person may unemployed during some seasons due to factors relating to climate

Question 27

What is hardcore unemployment?

Answer 27

Unemployment that occurs due to the struggle to find a job due to their lack of education, skills, age or because of personal problems

Question 28

What is sunkcost?

Answer 28

It is about the past and how the time, money or sweat that you have put into something that makes it hard to abandon.

Question 29

What are the two effects that occur due to unemployment to the economy?

Answer 29

Government finances result in higher spending on welfare and lower tax revenue
The opportunity cost of money spent on higher welfare could have been used for increased spending in healthcare and education

Question 30

What does point A and point B in the PPF curve represent?

Answer 30

Point A represents an economy which resources are fully used and point B lies inside the PPF

Question 31

What does the gap between Point A and B represent in the PPF Curve?

Answer 31

The lost output and income

Question 32

How does the PPF curve diagram explain it?

Answer 32

The diagram demonstrates how the economy is not producing at it’s full capacity, therefore there is a waste of productive resources. This results in a fall in production in the economy.

Question 33

What does point A = in the PPF curve?

Answer 33

Point A = full employment

4.5% unemployment

Question 34

What does point B= in the PPF curve?

Answer 34

B= rising unemployment

8% unemployment