Theme 1 -Micro 1.2.1

Question 1

Behavioural economics

Answer 1

Research on psychology in traditional models to better understand decisions by investors, consumers and other economic participants.

Question 2

Income

Answer 2

Income represents a flow of earnings from using factors of production to generate an output of goods and services. For example, wages and salaries are a factor reward to labour and interest is the flow of income for the ownership of capital.

Question 3

Market incentives

Answer 3

Signals that motivate economic actors to change their behaviour perhaps in the direction of greater economic efficiency.

Question 4

Profit maximisation

Answer 4

The assumption that producers wish to produce an output that will create maximum profit levels.

Question 5

Rational choice

Answer 5

Rational choice involves the weighing up of costs and benefits and trying to maximise the surplus of benefits over costs.

Question 6

Utility

Answer 6

Utility is a measure of the satisfaction that we get from purchasing and consuming a good or service.

Question 7

Utility maximisation

Answer 7

The assumption that consumers behave rationally in allocating their limited budget between different products so as to maximise total satisfaction from their purchases.