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What is the assumption about rational decision making for consumers in economics?
Consumers aim to maximise utility.
What is the term used to refer to a rational consumer in economic theory?
Homo Economicus.
What do firms aim to maximise according to economic theory?
Profit.
What is the main aim of governments according to rational decision making?
Maximise social welfare.
What causes a movement along the demand curve?
A change in the price of the good.
What does a shift of the demand curve represent?
A change in one of the factors affecting demand.
What happens to quantity demanded during a contraction in demand?
The quantity demanded falls due to an increase in price.
How does an increase in population affect the demand curve?
The demand curve shifts to the right, indicating an increase in demand.
What is the effect of a successful advertising campaign on demand?
It is likely to increase demand.
What does the law of diminishing marginal utility state?
The satisfaction derived from consuming an additional unit of a good decreases as more is consumed.
What is price elasticity of demand (PED)?
The responsiveness of demand to a change in the price of the good.
In what scenario is demand considered unitary elastic?
When PED equals 1.
What does it mean if a good is classified as elastic?
The quantity demanded is relatively responsive to price changes.
What are substitutes in terms of cross elasticity of demand (XED)?
Goods with a positive XED, where an increase in the price of one good increases the demand for the other.
How is supply defined in economics?
The ability and willingness to provide a good or service at a particular price.
What does a shift of the supply curve indicate?
A change in one of the factors affecting supply.
What is one factor that can lead to a decrease in supply?
An increase in the costs of production.
What is price elasticity of supply (PES)?
The responsiveness of supply to a change in the price of the good.
What determines the market clearing price?
The point at which supply is equal to demand.
In terms of indirect taxes, what is an ad valorem tax?
A tax that increases in proportion to the value of the good.
What influence do subsidies have on the supply curve?
They cause the supply curve to shift to the right, indicating an increase in supply.
What are consumer and producer surplus?
Consumer surplus is the difference between the price consumers are willing to pay and what they actually pay; producer surplus is the difference between what producers are willing to sell a good for and the price they actually receive.
What is one reason behavioral economists question the rationality assumption in traditional economic theory?
Consumers do not always have the necessary information to make rational decisions.
What is the term for the phenomenon where individuals copy the actions of a large group?
Herding behaviour.
What is the impact of addictive goods on price elasticity of demand?
They tend to have inelastic demand.
What does it mean for demand to be perfectly inelastic?
A change in price has no effect on the quantity demanded.
When is a good considered a luxury good in terms of income elasticity of demand (YED)?
When YED is greater than 1.
What causes a decrease in consumer and producer surplus according to demand shifts?
A decrease in demand.
What signals to suppliers and consumers that market conditions have changed?
Changes in price.
What effect does a tax have on consumer prices according to the incidence of tax?
The burden of tax may fall more on the consumer if demand is inelastic.
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