Economics and Behavioural Economics Revision Flashcards

Comprehensive flashcards covering introductory economic concepts, market mechanisms, and behavioural economics based on the lecture notes.

Microeconomics

The branch of economics that studies individual parts of the economy, such as specific markets, individual consumers, businesses, and industries.

Macroeconomics

The branch of economics that studies the economy as a whole, focusing on national issues like GDP, inflation, unemployment, and national living standards.

Positive economics

Objective and fact-based economic analysis that can be tested and proven true or false using evidence.

Normative economics

Subjective economic statements based on values or beliefs that express what should happen and cannot be tested.

Factors of Production

The resources used to produce goods and services, categorized into Land, Labour, Capital, and Entrepreneurship.

Land

All natural resources used in production, including soil, minerals, forests, oil, and the environment.

Labour

The physical and intellectual effort provided by individuals, such as doctors, mechanics, or bankers, used in the production process.

Capital

Man-made resources used to produce other goods and services, such as machines, factories, tools, and equipment.

Entrepreneurship

The process of establishing a business to satisfy a need in the market, whilst taking on the associated risks.

Scarcity

The basic economic problem where human wants and needs are unlimited but resources are limited.

Opportunity Cost

The value of the next best alternative that is given up when a choice is made.

Production Possibility Frontier (PPF)

A model showing the maximum possible combinations of two goods or services an economy can produce when all resources are fully and efficiently used.

Productive efficiency

Represented by points on the PPF curve where resources are being used to their maximum potential.

Trade-off

A situation where choosing one thing means giving up all other alternatives, whereas opportunity cost refers only to the next best alternative.

Cost-Benefit Analysis

A tool used to compare the benefits of a decision against its costs to determine if a policy or action is worthwhile.

Market Economy (Market Capitalism)

An economic system where resources are privately owned and decisions are guided by consumer demand, self-interest, and profit motives.

Planned Capitalism

A system where resources are privately owned but the government directs production, often seen during wartime.

Market Socialism

An economic system where the government owns most resources, but markets still determine many prices and firms may operate like private businesses.

Mixed Economy

An economy, like Australia's, that combines a market system with government intervention to redistribute income and provide public goods.

Household Sector

The sector in the circular flow model comprising consumers who buy goods and services and supply resources like labour.

Business Sector

Firms that buy resources from households and produce goods and services to contribute to GDP.

Material Living Standards

Access to physical goods and services such as housing, healthcare, and technology, often measured using GDP per capita.

Non-Material Living Standards

The intangible aspects of quality of life, including happiness, low crime rates, and political freedom.

Maximisation of utility

The traditional economic assumption that consumers act to maximize their own satisfaction or happiness.

Market Mechanism

The process where the interaction of demand and supply determines the price and quantity of goods and services.

Relative Prices

The price of one good compared to another, which serves as a signal for resource allocation by producers and consumers.

Perfect Competition

A market structure with many buyers and sellers, homogeneous products, free entry and exit, and where firms are price takers.

Law of Demand

The principle that as the price of a good rises, the quantity demanded falls, and vice versa, ceteris paribus.

Expansion in demand

A movement along the demand curve occurring when a price decrease leads to an increase in the quantity demanded.

Law of Supply

The principle that as the price of a good rises, the quantity supplied increases, representing a positive relationship.

Market Equilibrium

A state reached when quantity demanded equals quantity supplied, establishing a stable market price.

Monopolistic Competition

A market with many firms selling slightly differentiated products, giving them some pricing power.

Oligopoly

A market dominated by a few large firms with high barriers to entry and interdependent pricing, such as supermarkets or airlines.

Monopoly

A market with a single seller and no close substitutes, often resulting in higher prices and reduced consumer choice.

Price Discrimination

The business strategy of charging different prices to different consumers for the same product, such as student discounts.

Multiple Branding

A strategy where a company sells similar products under different brand names to target different consumer segments.

Behavioural economics

The study of how psychological factors and insights into human behaviour influence economic decision-making.

Homo Economicus

The traditional economic model of a perfectly rational, self-interested, and utility-maximising individual.

Bounded rationality

The concept that human decision-making is limited by cognitive abilities, information gaps, and time constraints.

Heuristics

Mental shortcuts or rules of thumb used by individuals to make "good enough" decisions quickly.

Bounded willpower

The tendency for people to over-value immediate rewards at the expense of their long-run interests or intentions.

Bounded self-interest

The fact that humans are often willing to sacrifice their own interests to help others or ensure fairness.

Overconfidence Bias

The tendency for consumers to overestimate their ability to make good decisions or judgements.

Anchoring effect

A cognitive bias where an individual relies too heavily on the first piece of information encountered when making a decision.

Status Quo Bias

The tendency to stick with a current choice or situation even when it is no longer in one's best interest.

Herd Behaviour

The tendency to follow the sentiment or actions of the majority, even if it is not a good personal decision.

Framing Bias

When choices are influenced by how options are presented through different wordings or settings rather than the objective facts.

Present Bias

The tendency to seek immediate gratification while rating future consequences as far less important.

Nudge

A soft intervention (soft paternalism) that steers behaviour in a desired direction without restricting choice or using financial penalties.

Hard paternalism

A government policy approach (Smack) that restricts freedom of choice through laws, bans, or fines to promote welfare.

Loss aversion

A concept from Daniel Kahneman's Prospect Theory stating that people feel the pain of losses more strongly than the pleasure of equivalent gains.