Economic Problem

Question 1

Ceteris paribus

Answer 1

All other things are held constant

Question 2

Positive statements

Answer 2

Statements that are objective and can be tested with factual evidence

Question 3

Normative statements

Answer 3

Value judgments based on opinion instead of factual evidence

Question 4

Purpose of economic activity

Answer 4

To produce goods and services which satisfy consumer needs and wants

Question 5

Factors of production

Answer 5

• Land
• Labour
• Capital
• Entrepreneurship

Question 6

Land

Answer 6

• Natural resources, along with the physical space for fixed capital
• Reward = rent

Question 7

Labour

Answer 7

• Human capital
• Reward = wages

Question 8

Entrepreneurship

Answer 8

• Managerial ability
• Profit

Question 9

Capital

Answer 9

• Physical and fixed capital
• Reward = interest

Question 10

Utility

Answer 10

The total satisfaction derived from consuming a good/service

Question 11

Marginal utility

Answer 11

The extra satisfaction from consuming one extra unit of the good/service

Question 12

Diminishing marginal utility

Answer 12

At a certain point the marginal utility of consuming an additional unit begins to decline

Question 13

Utility maximisation

Answer 13

Where consumers aim to generate the greatest utility possible from an economic decision

Question 14

Basic economic problem

Answer 14

Scarcity - people have unlimited wants but finite resources so choices must be made

Question 15

Opportunity cost

Answer 15

The next best alternative forgone

Question 15

Production possibility frontiers

Answer 15

They depict the maximum productive potential of an economy, using a combination of two goods or services

Question 16

Perfect information

Answer 16

All parties have complete, accurate market knowledge

Question 17

Imperfect information

Answer 17

At least 1 party lacks full knowledge

Question 18

Symmetrical information

Answer 18

Both parties in a transaction have equal access to relevant information

Question 19

Asymmetrical information

Answer 19

One party has more or better information than the other

Question 20

Traditional economic theory

Answer 20

Assumes that consumers are rational utility maximisers

Question 21

Bounded rationality model

Answer 21

People attempt to make rational decisions, however cognitive limitations, imperfect information and time constraints prevent them from achieving perfect utility maximisation

Question 22

Heuristics

Answer 22

Methods of simplifying the decision making process

Question 23

Bounded self-control

Answer 23

People know what is best long-term but lack the willpower to act accordingly

Question 24

Availability bias

Answer 24

We are biased towards event that are recent, personal or memorable

Question 25

Anchoring bias

Answer 25

Humans have a tendency to rely on the first piece of information that they hear

Question 26

Social norms

Answer 26

Other people's behavior creates a bias within the consumer as social pressures encourage consumers to do things they wouldn't otherwise do

Question 27

Altruism

Answer 27

The act of being selfless and considerate towards other people

Question 28

Framing

Answer 28

The war which consumers are presented a choice alters perception

Question 29

Nudges

Answer 29

A subtle change in how choices are presented to encourage a different decision, without restricting freedoms

Question 30

Defaults

Answer 30

The pre-set choice if a person does nothing