Chapter 2 : Individual economic decision making Flashcards
What is utility ?
Utility is the satisfaction of economic welfare an individual gains from consuming a good or service.
What is marginal utility ?
Marginal utility is the additional satisfaction or economic welfare an individual gains from consuming one extra unit of a good or service.
What is the hypothesis of diminishing marginal utility ?
As a person increases consumption of a food or service there is a decline in the marginal utility derived from consuming each additional unit of the good.
What is rational behaviour ?
Acting in the pursuit of self-interest which for a consumer means attempting to maximise welfare, satisfaction or utility from a good or service.
What is asymmetric information ?
Asymmetric information is when either the buyer or seller knows something about the potential transaction the other doesn’t.
What is perfect information ?
When both the consumer and producer know everything about what they are buying.
What is the heuristics ‘rule of thumb’ ?
A mental shortcut that helps individuals make decisions quickly.
What is behavioural economics ?
Behavioural economics is a method of economic analysis that applies psychological insights to human behaviour to explain how they make decisions.
What is bounded rationality ?
When individuals make choices based off imperfect information, limited time and limitations of their mind.
What is bounded self-control ?
Limited self-control in which individuals lack the ability to make decisions in their self-interest.
What is ‘thinking fast’ ?
Decisions that are made quickly without thinking.
What is ‘thinking slow’ ?
Thinking slowly and reflecting carefully on the decision you will make.
What is cognitive bias ?
A systematic error in thinking that affects the judgements and decisions people make.
What is availability bias ?
When individuals make judgements on the likelihood of future events because of how easy it is to recall a similar event.
What is anchoring ?
The human tendency for an individual to use an initial piece of information when making judgements.
What is an example of a negative social norm ?
The attitudes towards drinking a lot of alcohol that make younger people drink a lot because it’s what they think they’re supposed to do.
What is an example of a positive social norm ?
The change in social attitudes towards smoking in public as it isn’t allowed anymore.
What is altruism ?
Acting in the concern of someone else’s welfare.
What is fairness ?
The quality of being impartial and free of favouritism.
