Nature Of Economies Flashcards
Certeris Paribus
All other things are held constant when discussing economic
Hypothesis
Theory method
observation
form hypothesis
prediction
testing
Postive statement
factural bsed
normalative statremernt
based on a value judgement
fundamental economic problem
unlimited wants but scarce resources
3 economic questions
who
what
for
what efficiency foes the PEF show
productive efficiency
not allocative efficiency
Capital goods
foods used to produce consumer goods
why is the PPF curved
because the curve represents that factors of production are equally inefficient
factors of production fo not have equal efficiencyies
productivity
rate of output why a factor of production
division of labour
splitting up the production process into smaller separate tasks and assigning work to differnt roles
advantages and disadnatnes of division of labo0ur
- increased output
- improved quality
- lower unit cost
- lower training cost
- demotivation
- higher employee turnover
- recruitment and training
- low human capital created
pros and cons of specialisation
more vulnerable economy
overspecialisation
depletion of resources
variety of work opportunities
more output
more trade
Utility
benefit happiness or satisfaction gained from doing or consuming socmehtin
marginal utility
utility from consuming +1 unit
total utility
utility from all consumed units
minimising marginal utility
the decreasing utility from units with all units consumed
7 forms of irrational behavioru
- bounded rationality
- bounded self control
- altruism
- social norms
- anchoring bias
-avalubility bias - rule of thumb
how does diminishing marginal utility show a decreasing of the D curve
As MU decreases
the economic value of an additional untit decreases
therefore the economic benefit reduces hence the cost willing to be paid decreases
4 cognitive biases
social norms
anchoring buas
availability bias
rule of thumnb
3 ways the govt can reduce consumption of demerit goods
nuggets- into on a cigarettes
framing- info campaigns shifting discussion
restricted choice- no smoking in a home
bounded rationality
limited mental processing
leads to potential into overlaod
wrong choice
decreases maximum utility
bounded self control
limited self control
altruism
caring about the utility of other people
