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Economics > Microeconomics L8-9 > Flashcards

Microeconomics L8-9 Flashcards

1
Q

What is the problem with economics models?

A

Assumptions about the behaviour of economic agents must be made

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2
Q

Which two approaches can assumptions be made with in the economy and what are they

A

Deduction - start with a hypotheses

Induction- collect evidence

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3
Q

Types of schools in inductive approach

A

Behavioural school and Keynesian school

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4
Q

Types of schools in deductive approach

A

Classical school and neoclassical school

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5
Q

In classical and neoclassical economics what are decision makers assumed to be?

A

Rational

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6
Q

What does rational mean

A

Buying products that maximise utility

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7
Q

Define utility

A

The satisfaction or benefit derived from consuming a good

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8
Q

What do firms do when making rational economics decisions

A

Maximise utility - maximising profit

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9
Q

How do firms maximise profit

A
  • Producing as efficiently as possible

- making things consumers want and can afford

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10
Q

What do economic agents require to make rational decisions

A

Time, information and the ability to process information

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11
Q

What is behavioural economics

A

School of economic thought based on evidence and observations to develop assumptions of economic decision making (inductive)

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12
Q

What does behavioural economics assume

A

Individuals have bounded rationality

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13
Q

What is bounded rationality

A

When individuals wish to maximise utility but are unable to do so due to lack of time, info and ability to process info

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14
Q

What aspects of human behaviour prevent rational decision making

A
  • habitual behaviour /consumer intertia
  • influenced by others behaviour
  • consumer weakness at computation
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15
Q

What are the two types of economy consolidation and define them

A
  • nationalisation- bringing economic activity under state control (private to public)
  • privatisation- transferring economic activity to market (public to private)
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16
Q

Define demand

A

The quantity of a good of service purchased at A given price over a given period of time

17
Q

What does the law of demand state

A

Ceteris paribus, as the price of a good increases, quantity demandes decreases and vice Versa

18
Q

What does a decrease in price lead to (demand supply graph)

A

Extension / expansion in demand

19
Q

What does an increase in price result in ( demand supply graph)

A

Contraction in demand

20
Q

On a demand curve what is the relationship between quantity demanded and price

A

Quantity demanded varies inversely with price

21
Q

What are the conditions of demand

A
  • population size
  • changes in price of substitute goods
  • chances in price of complement goods
22
Q

Define substitute goods

A

Two alternative products that could be used for the same purpose

23
Q

Define complement goods

A

Products that are used together

24
Q

What other factors can affect demand?

A
  • change in age structure of population
  • change in incomes
  • advertising
  • change in consumer tastes
25
Q

Define raw material

A

Any material such as a oil, cotton or sugar in its natural condition before it has been processed for use

26
Q

Define revenue

A

The income that a government or company receives

27
Q

Types of revenue and define them

A

Tax revenue- income government receives

Sales revenue- income company receives

28
Q

Equation for total revenue

A

Price x quantity

29
Q

Define supply

A

Quantity of a good or service that firms are willing to sell at a given price over a given time period

30
Q

What does the law of supply state

A

Ceteris paribus, as price of a good increases, quantity supplies increases and vice Versa

31
Q

What does the supply diagram assume

A
  • firms are motivated to produce profit

- cost of producing a unit increases as output increases

32
Q

What are the conditions of supply

A
  • changes In production costs
  • improvements in tech /innovation
  • number of firms in market
  • changes in price of related goods
  • weather
  • firms expectations about future prices
33
Q

Define marginal utility

A

Change in total utility or satisfaction derived from consuming an extra unit of a good or service

34
Q

How does marginal utility affect the demand curve

A

Diminishing marginal returns = decrease in demand

Economics (7 decks)

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