Chapter 1 and 2 Flashcards
Realtive Scarcity
The economic problem of having unlimited needs and wants, but limited recourses to meet them
Opportunity cost
The best forgone alternative of choosing one option over another
How do opportunity cost and relative scarcity relate?
They relate, because as consumers, we must decide where to best put our recourses into.
What are 3 Assumptions of the PPC
1) All goods and services are being produced at maximum efficiency
2) Producers can switch production easily and quickly
3) Only 2 goods or services are being produced in an economy
Dynamic Efficiency
Where short term and long term focuses are balanced?
Technical Efficiency
Where the nations recourses are producing the maximum amount possible
Allocative Efficiency
Where a nations recourses are allocated/used in an economy, as to produce the maximum benefits for the consumer
Consumer Sovereignty
The economic situation were the needs and wants of consumers determine what is being produced
3 Basic Economic questions
1) For Whom to produce
2) How much/ what to produce
3) how to produce
Material living standards
Goods or services that raise your standard of living. Strictly tangible items
- Income
- Car (luxury)
- Size of house
Non material living standard
Non material (not tangible) things that increase ones standard of living
- Mental Health
- Relationship Status
- Crime rate
Trade offs
The total amount of things that must be forgone when choosing one option over the other.
Unlike opportunity cost, as it focuses on all the alternatives, Instead of the best forgone alternative
2 Trade offs on a macroeconomic level
- between economic growth and the environment
- between efficiency and equality
Traditional Viewpoint of Economics
- self interested
- rational
- makes perfect decisions
- ordered preference
- fully informed
Behavioural viewpoint of economics
- bounded rationality
- makes good enough decisions
- reliance on shortcuts and rules of thumb
Economic factors that can influence consumer decision making
- Realtime prices
- Opportunity costs and trade offs
What are Externalities
When the consumption of a good or service converses the benefits/harm on a third party or bystander
POSITIVE: getting vaccinated- even though society is not involved, they benefit immensely from the vaccination
NEGATIVE: purchasing palm oil products from unsustainable sources- even though you are not directly killing orangutans, you are contributing to their demise
How does Behavioural economics challenge traditional economics
Challenges it, as it argues that people are not perfect. It aims to understand how the ‘average joe’ behaves and spends his money
Overconfidence bias
Spending more, I the hopes that you can accumulate that money at a later time
Bounded Rationality
Consumers do not always make perfect decisions and are I item by time, energy and patience.
Herd Behaviour
Consumers are more likely to purchase a good or service of people around them have the same product
eg. iPhones
Framing
People are more likely to purchase a product ir revise if it is presented correctly.
eg. 30% off, vs $3 off
Anchoring
Consumers are more illy to purchase products if their judgement is influenced by a starting price
eg. Buying a car- the car is the anchor, and purchasing the extras (roadside assistance, premium wipers etc) seem cheap in comparison
Status Quo Bias
Where consumers will retain the current situation or ‘stays quo’, even if it is not in their best interests
eg- home loan or insurance policy. Due to the amount of paperwork and perceived difficulty of finding another one, People will usually stick with the one they have currently
