Micro Economics - critique of the maximising behaviour of consumers and producers Flashcards
consumer rationality (assumption)
consumers make purchasing decisions according to tastes and preferences which satisfy 3 assumptions:
- consumer can rank goods according to preference
- preferences of alternate goods are consistent
- consumer always prefers more of a good than less
perfect information (assumption)
assumption that consumers have perfect information of alternatives at their disposal, so there is no uncertainty
utility maximisation (assumption)
assumption that consumers want to maximise their utility, by buying a combination of goods and services that results in the greatest amount of utility for money spent
Rule of thumb (bias)
simple guidelines to simplify decisions based on common knowledge or past experiences
e.g. one salad serving is two handfuls
Anchoring (bias)
use of irrelevant information as a reference point for estimating unknown information.
e.g. thinking $200 jeans is cheap because you first saw $250 jeans
Framing (bias)
how choices are frames to decision makers
Availability (bias)
people rely on recently available information and may not consider earlier information
e.g. overestimating risk of plane crash after a tragic event
bounded rationality
consumers are rational within their limits. it is limited by insufficient information, costliness of obtaining information and the limitation of human mines to process information
bounded self-control
people only exercise self control within limits, may not require self-control to make rational decisions
bounded selfishness
selfish interested behaviour is the underlying assumption of the maximisation principle, does not account for selfless actions.
imperfect information
consumers cannot always have access to all the information to make a fully informed decision or may not understand available information
behavioural economics
studies how individuals make decisions instead of relying on assumptions about human behaviour
nudge theory
method used to influence consumers choices in a predictable way WITHOUT using financial incentives or imposing sanctions or limiting choice
choice architecture
design of particular ways or environments in which people make decisions. Based on the idea that choices are influenced by how options are presented
default choice
a choice made by default, instead of agreeing to do something, you opt out of doing it
restricted choice
choice is limited by the government or other authority to encourage socially desirable decisions. This is because there are so many choices, people may make bad choices
mandated choice
choice between alternatives is made mandatory by the government or other organisation.
free, required choice
profit maximisation
rational priced behaviour according to which firms are guided by the goal to maximise profit. The objective is to make the largest difference in value between production and revenue
corporate social responsibility (CSR)
practice of corporations to avoid socially undesirable activities such as polluting activities, employing children, employing workers under unhealthy conditions, etc.
Instead firms take part in socially desirable activities like supporting human rights and donating to charities
market share
percentage of total sales in a market that is earned by a single from. A large market share gives firms a competitive advantage.
growth maximisation
increasing the size and scale of the operations of a firm because learner firms have created market power, diversify so they are not reliant on one product
satisficing
the goal for firms to achieve satisfactory results for many objectives rather that pursuing a single maximising objective. Based off argument modern firms have many objectives that may partially overlap. This may force them to compromise and reconcile conflicts rather than pursue optimal results.
