How Markets Work Flashcards
what is behavioral economics about?
behavioral economics disputes rationality and utility maximization and argues that emotional, social and psychological factors can influence decision making.
what is anchoring?
value is often set by anchors or imprints in our minds which we then use as a mental reference point when making decisions.
what is utility?
utility is a measure of satisfaction that we get from purchasing and consuming goods and services.
what are some examples of anchoring?
“Big price drop” campaigns by supermarkets
recommended tips used by taxis/restaurants
what is loss aversion?
the tendency for people to strongly prefer avoiding losses than acquiring gains as loss is more painful.
what is herd behavior in behavioral economics?
We are herd animals and we often make decisions based in part on who is around us and the choices they make.
an example
what does economic theory assume about consumers decision making?
consumers aim to maximise utility; utility is the satisfaction gained from consuming a product.
what does economic theory assume about firms decision making?
assumes firms are run for their owners and share holders and so aim to maximise profit in order to keep shareholders happy.
what is demand?
demand is the quantity of a good demanded at a certain price and time
what is the difference between movements along the demand curve and shifts of the demand curve?
a MOVEMENT along the demand curve is caused by a change in price.
a SHIFT of the demand curve is caused by a change in any of the factors which affect demand
what is the acronym used for the shifts of demand? (conditions of demand)
PASIFIC
what does PASIFIC stand for? (shifts of demand)
Population Advertising Substitutes Income Fashion and taste Income tax Complementary goods
apart from PASIFIC, what other conditions of demand are there? (shifts of demand)
expectations
seasons
government legislation
