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Economics Micro > Unit 1 > Flashcards

Unit 1 Flashcards

1.1 Economic Methodology 1.2 The Nature and Purpose of Economic Activity 1.3 Economic Resources 1.4 Scarcity, choice and allocation of resources 1.5 PPC

1
Q

What does ‘ceteris paribus’ mean?

A

All other factors remain the same, only one thing changes.

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2
Q

What’s the difference between normative and positive statements?

A

Positives are quantifiable and factual, they can be tested against facts.
Normatives are subjective and opinions, not true or false.

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3
Q

What is opportunity cost?

A

The next best alternative forgone.

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4
Q

What are wants?

A

Not essential, but a desired product or service.

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5
Q

What is a need?

A

Something essential, it is required by someone.

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6
Q

What is the central issue of Economics?

A

We as humans have unlimited wants/needs but are in a world where resources are limited.

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7
Q

What are the 3 key economic decisions?

A

What to produce
Who to produce it for
How to produce it

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8
Q

Why do we want to improve our economic welfare?

A

Increases real GDP per capita, improving standards of living and they can therefore afford to pay for more or their wants/needs.

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9
Q

What is a free market economy?

A

One where firms decide what goods and services to produce limited intervention from the government.

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10
Q

What are the 4 factors of production?

A

Land
Labour
Capital
Enterprise

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11
Q

What is labour? (FoP)

A

All the workforce in an economy

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12
Q

What is Land? (FoP)

A

All of the natural resources that come from the earth that are used in the production of goods/services.

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13
Q

What is Capital? (FoP)

A

The man-made aids that are used in production e.g machinery.

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14
Q

What is Entrepreneur? (FoP)

A

How everything is organised

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15
Q

What is meant by ‘trade offs’?

A

All the alternatives given up in opportunity cost.

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16
Q

What is an economic good?

A

A good which has an opportunity cost in consumption as it uses up natural resources.

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17
Q

What is a free good?

A

One which has no opportunity cost as it doesn’t use up resources.

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18
Q

What do Production Possibility Diagrams illustrate?

A

Different features of the fundamental economic problem, like resource allocation, opportunity cost.

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19
Q

How do you improve your economic welfare?

A

Improving wants and needs

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20
Q

What is scarcity?

A

Unlimited wants from consumers, yet finite resources

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21
Q

Difference between capital good and consumption good?

A

Capital: will bring a stream of income in the future
Consumption: consumed that day

22
Q

What is key about individual demand?

A

Utility

23
Q

What is utility?

A

The satisfaction or benefit that a consumer gains for consuming a good/service

24
Q

Assumptions of individual demand?

A
  • Place a value equal to perceived satisfaction
  • Aim to maximise utility per £
  • Rational consumers will only consume if perceived satisfaction is equal to or more than the price
25
Q

What is maximisation?

A

When an economic agent tries to obtain the most that they can from the economic activity they undertake

26
Q

Economic objectives of households?

A
  • Maximisation of private benefit from consumption

- Maximisation of private benefit from working

27
Q

Economic objectives of firms?

A
  • Profit maximisation
  • Profit satisficing
  • Sales maximisation
  • Growth
28
Q

What is the utility theory?

A

The satisfaction a consumer gains from consuming a good/service.
Measured in utils

29
Q

What is total utility?

A

Aggregate amount of satisfaction an individual derives from consuming a good or service.

30
Q

What is marginal utility?

A

The amount of satisfaction an individual derives from consuming an extra unit

31
Q

How to calculate marginal utility?

A

change in total utility / change in no. of units consumed

32
Q

What is utility maximisation?

A

When the last £ a consumer spends on each product yields the same amount of marginal utility

33
Q

What is symmetric information?

A

When buyers and sellers know the same information

34
Q

What causes irrational decision making?

A
  • Too little/much information
  • Knowing more/less than other parties
  • Costly to acquire information
35
Q

What is information failure?

A

Do not have symmetric information

Have asymmetric information

36
Q

What is behavioural economics?

A

Social, moral and psychological factors that determine the behaviour of economic agents

37
Q

What is bounded rationality?

A
  • Limited ability to process and evaluate information
  • Available information is incomplete
  • The time is limited
38
Q

What is bounded self-control?

A

Have good intentions but lack self discipline to see them through

39
Q

Rule of thumb (heuristics)

A

Shortcuts individuals use to make decisions

40
Q

What is anchoring?

A

Relying on particular information

41
Q

What is avaliability?

A

Making judgements by recalling recent situations

42
Q

What are social norms?

A

The influence on others in decision making

43
Q

What is altruism and fairness?

A

People are motivated to do the right thing

44
Q

What is the nudge theory?

A

An attempt to manipulate social norms through positive reinforcement

45
Q

What are the behavioural economic policies?

A
  • Choice architecture
  • Nudges
  • Restricted choice
  • Framing
  • Mandated choice
  • Default choice
46
Q

What is choice architecture?

A

How to influence choices in order to get the desired outcome

47
Q

What is framing?

A

Similar to choice architecture but through words and numbers

48
Q

What are nudges?

A

Form of choice architecture using gentle suggestions and positive reinforcement

49
Q

What are default choices?

A

Set desirable outcomes as default choice

50
Q

What is restricted choice?

A

Restricting the amount of options available to choose from

51
Q

What is mandated choice?

A

Where people are required by law to make a choice

Economics Micro (5 decks)

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