Economics Revision Sheet

What does Rational Choice Theory assume about consumers?

Consumers are rational decision-makers aiming to maximise utility within budget constraints.

What is the goal of Rational Choice Theory?

To maximise utility (satisfaction) within budget constraints.

What causes a movement along the demand curve?

A change in price.

What determines equilibrium in a market?

Equilibrium occurs where supply equals demand.

What are the two main sectors in the Circular Flow of Income model?

Households and Firms.

What do households provide in the Circular Flow of Income model?

Labour.

What is a Mixed Economy?

An economic structure that includes both market and government control.

What is the Law of Diminishing Marginal Utility?

Each additional unit consumed increases total utility but by a smaller amount.

What is Loss Aversion in Behavioral Economics?

Losses feel worse than equivalent gains feel good.

What is the decision rule in Utility Theory?

Consume extra units while Marginal Utility is greater than or equal to Price.

What does the term 'bounded rationality' refer to?

Limited information and mental processing capabilities affecting decisions.

What can cause a shift in the supply curve?

Non-price factors such as input costs or technology.

What is the primary advantage of a Market Economy?

Efficiency and consumer choice.

What is an example of framing in Behavioral Economics?

Presenting information in a way that affects choices, like saying '90% fat free'.

What leads consumers to make decisions according to Behavioral Economics?

Psychological and emotional influences.

What do leakages represent in the Circular Flow of Income model?

Saving, tax, and imports that reduce the flow of income.

In a Command Economy, who controls resources?

The government.

What is a key diagram to memorise for the exam?

Supply & demand curve including shift examples.

What should always be stated when describing laws of supply or demand?

Ceteris paribus.