Individual economic decision making

Question 1

what is utility

Answer 1

satisfaction or economic welfare an individual gains from consuming a good or service

Question 2

marginal utility

Answer 2

the cost of consuming one extra unit of a good or service

Question 3

gov aim

Answer 3

maximise welfare

Question 4

consumer aim

Answer 4

Maximise utility

Question 5

fims aim

Answer 5

maximise profits

Question 6

law of diminishing marginal utility

Answer 6

the utility of consuming one extra unit continuously decreases

Question 7

asymmetric information

Answer 7

when one party (buyer or seller) possess more information than the other

Question 8

bounded rationality

Answer 8

when rationality is limited by the choices or time a consumer has

Question 8

bounded self control

Answer 8

individuals lack self control and act in their best interest

Question 9

behavioural economics

Answer 9

human psychological behaviour that influences how individuals make decisions/choices

Question 10

availability bias

Answer 10

individuals make judgements about likelihood of future events based on previous, similar ones

Question 11

nudges

Answer 11

try to shift individuals behaviour in ways which comply with desirable social norms

Question 11

anchoring

Answer 11

individuals making a judgement relying too much on the first bit of information presented

Question 12

altruism

Answer 12

concerns for the welfare of others

Question 13

Consequences of altruism

Answer 13

Suffering financially, time loss, and personal risk

Question 14

Is fairness a positive or normative term

Answer 14

Normative - different people have different views on the meaning of fairness

Question 15

Fairness definition

Answer 15

Quality of being impartial/free of favouritism

Question 16

Choice architecture

Answer 16

A framework setting out different ways in which choices can be presented to consumers and how that framework influences decisions

Question 17

Default choice

Answer 17

Choice that is chosen automatically unless an alternative is specified

Question 18

Framing

Answer 18

How something is presented determines people’s choices
e.g: 90% fat-free sounds better than 10% fat

Question 19

Mandated choice

Answer 19

Required to make a choice, often by law

Question 20

Restricted choice

Answer 20

Offering fewer choices on the basis that too many options is unhelpful and leads to poor decisions

Question 21

Difference between Nudge and Shove policies

Answer 21

Nudge - lead people by providing them with information to make a choice
Shove - instruct people to act in certain ways