LS7 The Role Of The State In An Economy Flashcards
What is the state made up of?
Territories
Citizens
Government
What is the government?
A government rules over a state at a given time
What is the difference between a state and a government?
A state is permanent. The government is not. The state is made up of all citizens. The government is not
What is the role of the state in a mixed economy?
It allocates resources through planning
It redistributes incomes through welfare spending
It regulates consumers and firms
What assumptions can an economist make about the behaviour of economic agents?
Assumptions can be made with the following two approaches:
Deduction: (start with a hypothesis)
Induction: (collect evidence)
What is a rational decision?
For consumers, a rational decision means buying products that maximise utility
What is utility?
Utility is the satisfaction or benefit derived from consuming a good
What is utility for firms? How is it achieved?
Utility for firms is taken to be profit. Maximising profit is achieved through producing as efficiently as possible and making things that consumers both want and can afford
What do economic agents require to make rational decisions?
Time, Information, The ability to process information
What is behavioural economics?
Behavioural economics is a school of economic thought based on evidence and observations to develop assumptions of economic decision making. This means it uses inductive approach rather than the deductive
What is bounded rationality?
Behavioural economics is built on bounded rationality. Bounded rationality are where individuals wish to maximise utility but are unable to do so due to a lack of time, information, and ability to process information
What are the aspects of human behaviour that prevent rational decision making?
Habitual behaviour, Consumer Inertia (Uncertainty prevents decision), Influence by others, Consumer Weakness at Computation (Data)
