Part 1.1: Individual economic decision making

Alex Maas
Flashcards by Alex Maas, updated more than 1 year ago
Alex Maas
Created by Alex Maas almost 3 years ago


A2 Economics Flashcards on Part 1.1: Individual economic decision making, created by Alex Maas on 03/01/2017.

Resource summary

Question Answer
Individual demand curve Shows how much of a good or service the consumer plans to demand at different possible prices.
Law of demand As a good's price falls, more is demanded.
Shift of a demand curve The movement of a demand curve to a new position.
Increase in demand A rightward shift of the demand curve.
Decrease in demand A leftward shift of the demand curve.
Extension of demand An adjustment or movement down a demand curve following a fall in the good's price.
Contraction of demand An adjustment or movement up a demand curve following an increase in the good's price.
Condition of demand A determinant of demand, other than the good's own price, that fixes the position of the demand curve. A change in one of these leads to a shift in demand.
Rational Behaviour Acting in pursuit of self-interest, which for a consumer means attempting to maximise the welfare, satisfaction or utility gained from the goods and services consumed.
Utility The satisfaction or economic welfare an individual gains from consuming a good or service.
Marginal Utility The additional welfare, satisfaction or pleasure gained from consuming one extra unit of a good.
Hypothesis of diminishing marginal utility For a single consumer the marginal utility derived from a good or service diminishes for each additional unit consumed.
Asymmetric information When one party to a market transaction possesses less information relevant to the exchange than the other.
Behavioural Economics A method of economic analysis that applies psychological insights into human behaviour to explain how individuals make choices and decisions.
Rule-of-thumb A rough and practical method or procedure that can be easily applied when making decisions.
Bounded Rationality When making decisions, an individual's rationality is limited by the information they have, the limitations of their minds, and the finite amount of time available in which to make decisions.
Bounded self-control Limited self-control in which individuals lack the self-control to act in what they see as their self-interest.
Cognitive Bias A mistake in reasoning or in some other mental thought process occurring as a result of, for example, using rules-of-thumb or holding onto one's preferences and beliefs, regardless of contrary information.
Availability Bias Occurs when individuals makes judgements about the likelihood of future events according to how easy it is to recall examples of similar events.
Anchoring A cognitive bias describing the human tendency when making decisions to rely too heavily on the first piece of information offered. This is used when making subsequent judgements.
Social norms Forms or patterns of behaviour considered acceptable by a society or group within society.
Economic sanctions Restrictions imposed by regulations that restrict an individual's freedom to behave in certain ways. Breaking a sanction can lead to punishment.
Nudges Factors which encourage people to think and act in particular ways. Nudges try to shift group and individual behaviour in ways which comply with desirable social norms.
Altruism Concern for the welfare of others.
Fairness The quality of being impartial, just, or free of favouritism. It can mean treating everyone the same/equally.
Choice Architecture A framework setting out different ways in which choices can be presented to consumers, and the impact that presentation makes on consumer decision making.
Default Choice An option that is selected automatically unless an alternative is specified.
Framing How something is presented influences the choices people make.
Mandated choice People are required by law to make a decision.
Restricted choice Offering people a limited number of options so that they are not overwhelmed by the complexity of the situation. If there are too many choices, people may make a poorly thought out decision or not make one at all.
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