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Economics REVISION 1 (Micro) > Key Terms > Flashcards

Key Terms Flashcards

1
Q

Altruism

A

Humans to behave with more kindness and fairness than would be the case if they behaved rationally

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2
Q

The ultimatum game

A

Example of altruism- if two people have to share some money it is rational to split 19:1 but it is usually more 10:10

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3
Q

Inequity aversion

A

Linked to altruism-

Humans do not like unequal outcomes

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4
Q

Anchoring

A

The use of (usually) irrelevant information as a reference point for helping to make an estimate of an unknown piece of information (behavioural scientists describe this as cognitive bias)

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5
Q

Bounded rationality

A

The idea that the cognitive, rescission-making capacity of humans cannot be fully rational because of a number of limits that we face

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6
Q

What are the limits of making rational decisions

A
  • information failure
  • time limits
  • limits of the human brain processing
  • emotions
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7
Q

Bounded self control

A

Rationally, + according to neoclassical economic theory, consumers know when the price of a good/service exceeds the marginal utility- causing consumers to stop consuming.
In reality people over eat and over invest etc.

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8
Q

Choice architecture (framing)

A

Framing of a choice in order to manipulate the outcome of someone’s decision e.g. Default option, amount of options available

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9
Q

Default choice

A

The option that a consumer ‘selects’ if they do nothing- these rarely change

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10
Q

Habit

A

Rigid pattern of behaviour followed by a person

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11
Q

Herding (Keynes)

A

Individuals act collectively as part of a group, making decisions as a group that they would not as an individual (social pressure to conform + it’s hard to believe a large group could be wrong)

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12
Q

Heuristics (rule of thumb)

A

A method of technique that people use to help them make a decision or solve a problem more quickly- outcome may not be perfect or optimised, but is usually ‘good enough’

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13
Q

Mandated choice

A

Where people make a decision in advance with respect to whether they wish to participate in a particular action- require by law to make that choice e.g. Organ donation

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14
Q

Restricted choice

A

Because of bounded rationality, consumers can find it really difficult to make effective decisions when the number of choice is large- can result in no decision at all. Restricting choice makes consumers more likely to act and a make a decision = more efficient outcome

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15
Q

Zero price effect

A

The demand curve for a good changes shape dramatically once the price of the good is zero. Standard economics cannot explain the psychological power of a good that is free.

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16
Q

Derived demand

A

The demand for a factor of production used to produce another good or service

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17
Q

Adverse selection

A

Where the expected value of a transaction is known more accurately by the buyer or the seller due to an asymmetry of information e.g. Health insurance

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18
Q

Automation

A

Production technique that uses capital machinery / technology to replace or enhance human labour and bring about a rise in productivity

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19
Q

Bottlenecks

A

Any factor that causes production to be delayed or stopped - this may reduce the PES of a product

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20
Q

Capacity utilisation

A

The extent to which a business is making full use of existing factor resources

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21
Q

Capacity building

A

Efforts to develop human skills or infrastructures within a community or organisation

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22
Q

Capital-intensive

A

A production technique which uses a high proportion of capital to labour

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23
Q

Capitalist economy

A

An economic system organised along capitalist lines uses market-determined prices to guide our choices about the production and distribution of goods

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24
Q

Cartel

A

A formal agreement among firms. They may agree on prices, total industry output, market shares, and allocation of customers, territories etc

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25
Q

Collusion

A

Any explicit or implicit agreement between suppliers in a market to avoid competition - aim to reduce market uncertainty and achieve a level of joint profits similar to that which might be achieved by a pure monopolist

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26
Q

Command and control

A

Laws and regulation backed up by inspection and penalties for non-compliance

27
Q

Command economy

A

Economic system where resources are allocated by the government

28
Q

Common resources

A

Goods or services that have characteristics of rivalry in consumption and non-excludability

29
Q

Competitive market

A

Market where no single firm has a dominant position and where the consumer has plenty of choice

30
Q

Competitive supply

A

Alternative products a firm could make with its resources

31
Q

Conspicuous consumption

A

Consumption designed to impress others rather than something that is wanted for its own sake

32
Q

Consumer sovereignty

A

Exists when the economic system allows scarce resources to be allocated to producing goods and services that reflect the wishes of consumers

33
Q

Contestable market

A

Market with no entry barriers

34
Q

Deadweight loss

A

The loss in producer and consumer surplus due to an inefficient level of production perhaps resulting from market failure or government failure

35
Q

Dominant monopoly

A

A firm with 40% or higher market share

36
Q

Economy of scope

A

Economies of scope occur where it is cheaper to produce a range of products

37
Q

Excise duties

A

Indirect taxes levied on out spending on goods and services such as cigarettes, fuel and alcohol

38
Q

External growth

A

When a company increases its sales and products by buying other companies, rather than from its own operations

39
Q

First mover advantage

A

The first company to introduce a new product to a market, has the opportunity to extract the greatest long term benefit from the product introduction

40
Q

Flexible pricing

A

A firm varies price by customer to maximise revenue

41
Q

Flexible working

A

A workforce that is multi-skilled and able to work variable hours in response to changing demand

42
Q

Free market

A

The forces of supply and demand alone determine price and output without any government intervention

43
Q

Freemium

A

A business model, especially on the internet, whereby basic services are provided free of charge while more advanced features must be paid for

44
Q

Fine coefficient

A

Measures the extent to which the distribution of income among individuals or households within an economy deviates from a perfectly equal distribution

45
Q

Hedging

A

The process of protecting oneself against risk

46
Q

Horizontal equity

A

It requires individuals to be treated equally

47
Q

Horizontal integration

A

Two firms join at the same stage of production in one industry

48
Q

Incidence of tax

A

How the final burden of a tax is shared out

49
Q

Incumbent firm

A

A business already operating in and established in a market

50
Q

Internalised

A

Where any spill over effects from economic activity are absorbed by the consumer or firm themselves

51
Q

Just in time

A

Production that produced goods to order and where businesses hold few stocks

52
Q

Latent demand

A

It exists when there is a willingness to purchase a good or service, but where the consumer lacks the purchasing power to be able to afford the product

53
Q

Local monopoly

A

A monopoly limited to a specific geographical area

54
Q

Non-rival consumption

A

The consumption of a good by one person does not limit the amount available for others

55
Q

Office of fair trading

A

A government agency responsible by a few large suppliers

56
Q

Oligopoly

A

Market dominated by a few large suppliers

57
Q

Ostentatious consumption

A

Some goods are luxurious items where satisfaction comes from knowing both the price of the good and being able to flaunt consumption of it to other people

58
Q

Out-sourcing

A

Subcontracting a process, such as design or manufacturing, to another company

59
Q

Pareto efficiency

A

When resources cannot be reallocated without making someone else worse off

60
Q

Paywall

A

Where access is restricted to users who have paid to subscribe to a website

61
Q

Peak pricing

A

When a business raises prices at a time when demand is strongest

62
Q

Penetration pricing

A

Where s firm choose to set a low price to gain market share / brand recognition

63
Q

Price rigidity

A

Situation where the price of a product rarely changes

64
Q

Supply shock

A

An event that directly alters firms costs and prices shifting the supply curve either to the right or to the left

Economics REVISION 1 (Micro) (65 decks)

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