Unit 1 Economics Revision

Allocation of resources

How an economy chooses to utilise its labour, capital and natural factors of production

Anchoring

An arbitrary reference point that influences consumer behaviour

anti-competitive behaviour

Illegal actions by businesses to reduce competition in markets

Behavioural Economics

A field of study based on the idea that consumers do not always make rational self-interested decisions

Bounded rationality

A concept that says there are limits to consumer logic when it comes to making decisions

Bounded self-interest

A concept that says that consumers can be selfish, but this is not always the case

Bounded willpower

A concept that says consumers do not always have the determination to make a rational choice

Business behaviour

The factors influencing how firms make decisions about the production and sale of particular goods and services.

Businesses

The economic agent responsible for providing incomes and goods/services to households.

Capital resources

Are producer or investment goods (e.g. plant and equipment) that help lift productive capacity and make other labour and natural resources more productive or efficient.

Circular Flow Model

A diagram showing how the economy works, including households, businesses and government sectors

climatic conditions

Weather and natural disasters; a non-price supply factor

Competition and Consumer Act 2010

The legal document outlining anti-competitive behaviour

complements

Products that can be used together; bread and butter

Consumer behaviour

Why, how, where and when consumers choose to purchase or not purchase a good or service.

consumer confidence

The overall level of optimism amongst buyers; a non-price demand factor

Consumer sovereignty

The ability of the consumer in a competitive market economy to direct or allocate resources.

Contraction

A downturn phase of the business cycle associated with rising unemployment, slowing output levels, often lower inflation

Cost-benefit analysis

Adding up all the anticipated costs of a particular decision (e.g. resource and monetary costs, time, opportunity costs) and comparing these against the total value of the benefits

costs of production

The price of making a good/service; a non-price supply factor

demand

The willingness and ability of consumers to buy a product

demand curve

The graphic representation of the willingness and ability of consumers to buy a product

Disincentives

Any factors that demotivate an individual from following a particular path

disposable income

Consumers' spending money after paying taxes

Economic activity

The activities of individuals, firms and governments that involve the production of goods and services.

Economic agents

People or organizations engaged in any of the four essential economic activities

Economics

The study of human behaviour as a relationship between outcomes (living standards) and the scarce means by which to attain them (resources)

Efficiency

The productivity of an economy; the effective allocation of its resources

equilibrium price

The price at which demand and supply meet

equilibrium quantity

The quantity of goods/services at which demand and supply meet.

Framing bias

Consumer choices depend on how information is presented to them

Free markets

Where the government allows prices to be fully set at equilibrium by the competitive forces of supply and demand.

Government

The economic agent responsible for regulating the market and improving efficiency in resource allocation

Government policy

A regulation or action by a department in the public sector to maximise living standards and/or minimise market failure

Herd behaviour

Consumers will tend to do what they see other consumers doing

Households

The economic agent responsible for providing factors of production and purchasing goods/services

Incentives

Rewards designed to change or modify the behaviour that would otherwise occur.

Informed decision-making

The assumption that consumers have access to all relevant information about a purchase

interest rates

The cost of borrowing money; set by RBA & banks. A non-price demand factor

Labour resources

Provide physical power and mental talents to the production process, generally in exchange for wages and salaries

Land resources

Naturally occurring factors of production such as minerals, forests, water and climate.

law of demand

A guideline that says: as price goes down, quantity demanded goes up

law of supply

A guideline that says: as price goes down, quantity supplied goes down

Living standards

How well-off a nation is overall, either in material or non-material measures.

living standards

The level of wellbeing of people in a nation, both material and non-material

Macroeconomics

The branch of economics that emphasises the central role played by the level of expenditure or aggregate demand.

Marginal benefits from consumption

The extra utility gained from using one unit of a good/service

Marginal utility

The additional satisfaction a consumer gets from having one more unit of a good or service.

Market economy

a system where the key economic questions are answered by households & businesses

market mechanism

The interaction between demand and supply in a market which moves towards equilibrium

market power

The degree to which firms can set prices in a market

market-based economy

A system where goods are exchanged based on supply and demand factors

Marketing

A range of strategies that businesses use to attract sales and profit; includes the 5Ps

Material Living Standards

the wellbeing of a population in terms of wealth, or access to goods & services

Maximisation of utility

the assumption that households want the most benefit from goods/services at the lowest price

Microeconomics

studies the operation of the smaller fragments or units making up the whole economy, such as a particular firm, an industry or a specific market.

Mixed economy

a system that combines aspects of both capitalism and socialism, with market power tempered by government intervention.

monopolistic competition

A market structure in which 100s of firms compete with differentiated products

monopoly

A market structure in which a single firm offers a unique product

Multi-branding

A marketing strategy involving one company offering many label choices to consumers

multiple branding

A profit strategy involving selling multiple products that are similar to increase sales and profits

Needs

Goods/services that are necessary to survival

Non-material living standards

the wellbeing of a population in terms of happiness, safety and other non-financial factors

non-price factors

Anything that impacts the demand or supply for a product that is not its price, such as consumer confidence or productivity

Normative economics

involves statements about what should be done, based on personal opinion, likes and dislikes.

Nudge

A gentle reminder or prompt designed to influence consumer behaviour

oligopoly

A market structure involving a few powerful firms who have some control over price

Opportunity cost

the loss that occurs when scarce resources are diverted into their next most productive use.

Overconfidence Bias

Consumers tend to overestimate their abilities, knowledge or skills when making decisions

perfectly competitive market

A market structure involving many firms selling an identical product, with no control over price

Planned economy

a system in which the public sector answers the key economic questions

population and demographics

The profile of a group of consumers, including number, age, gender and education; a non-price demand factor

Positive economics

analyses issues where the investigation is largely free of personal values, feelings or opinions.

Present bias

Consumers tend to focus on the short term rather than the long run when making decisions

price discrimination

An anti-competitive behaviour involving charging different groups of consumers different prices

Private Sector

the section of the economy made up of individually-owned businesses and companies

Production possibility diagram (PPD)

a graphic used to illustrate some of the production choices available to society in the ways resources may be used.

productivity

The efficiency of a business to supply a good/service; a non-price supply factor

profit

Revenue retained after expenses have been deducted; the main goal of businesses

Profit maximisation

the assumption that businesses want the most revenue and least expenses possible.

Public sector

the section of the economy made up of government agencies

Rationality

the assumption that consumers will make decisions based on a cost/benefit analysis

Regulations

Laws designed to influence household or business behaviour

relative prices

The cost of buying a product, compared to the cost of another product.

Relative scarcity

where people's needs and wants are virtually unlimited and exceed the limited resources available to satisfy those wants.

Resources

Factors of production, including natural, capital and labour.

Risk aversion

Consumers tend to avoid the possibility of making a loss

Self-Interest

the assumption that households will act for their own benefit

Status quo bias

Consumers tend to stick to their current path rather than changing to a better alternative

Subsidies

government payments or contributions made to incentivise household/business behaviour

substitutes

Goods or services that can be used in place of each other; Pepsi and Coke.

supply

the willingness and ability of firms to produce a good or service

supply curve

A graphic representation of the willingness and ability of firms to provide a good/service to a market

tastes and preferences

The desires of consumers in a market; a non-price demand factor.

Tax rebate

a savings on tax, designed to incentivise household/business behaviour

Taxes

a levy or duty households/businesses must pay; government use this as a stabilisation tool and disincentive.

technology

Digital and physical capital advancements; a non-price supply factor.

Trade-offs

the consequences of a choice

Traditional economy

a system where tradition and barter govern economic activity

Traditional view of consumer behaviour

Says that when consumers make decisions, they are rational, selfish and fully informed.