Learning Sequence 7-9 Micro Flashcards
What assumptions should economists make
They should follow deduction (start with a hypothesis) and induction (collect evidence)
What is a rational decision for a consumer
Buying products that maximise utility
What is a rational decision for a firm
It is a,so related to maximising utility, utility for firms is profit. They aim to profit maximise. Profit maximising is thru producing as efficiently as possible and making things both consumers want and afford
What do economic agents need to make a rational decision
Time
Information
Ability to process info
TIA.
Bounded rationality
When individuals wish to maximise utility but have a lack of time, info and ability to process info
What aspects prevent rational decisions. Making
Habitual behaviour - having a habit and sticking to it
Consumer inertia - being unsure about a decision
They are influenced by others behaviour
They have a weakness of computation so they don’t understand data or stats
Demand definition NEED TO REMEMBER
the quantity of a good or service purchased at a given price over a given period of time
What does the law of demand state
I’d price increases, the demand decreases vice versa
A decrease in price is a extension in demand curve (movement not shift - just move point forward )
An increase in price is a contraction in demand curve (movement not shift)
Substitute
Alternative products that could be used for the same purpose
Complement
Products that are used together
If two products were substitutes how would price affect it
If price of one increased the demand for the other would increase, bc consumers want a cheaper alternative
If two products were complements how would price affect it
If the price of one increases the demand for both decreases
What are the things that can affect demand
Age structure of population,
changes in income - a rise of income would mean a rise in demand
changes in taste,
successful advertising increases demand
Supply meaning NEED TO KNOWS
quantity of a good or service that firms are willing to sell at a given price over a given period of time
Rules of supply
If price of good increases, supply increases vice Versa
