Booklet 3 Flashcards
(52 cards)
What is the role of prices in deciding who receives resources - when there is excess demand, price will rise and those with the greatest willingness to pay will get the resources?
Allocative/rationing function of prices
What is it called to act entirely in the interests of others without regard to one’s own utility?
Altruism
What is it called when someone’s perceptions of something (e.g. the value of a good) are skewed by a single initial piece of information?
Anchoring
What term describes how one part in a transaction knows more than the other?
Asymmetric information
What is a tendency to give undue importance to the most recent or well-known example of something, even if that is not representative?
Availability bias
What is a limit to people’s ability to be rational based on their limited ability to process information, limited time and inaccurate or incomplete information?
Bounded rationality
What is a limited ability to put into practice utility-maximising behaviour, even if someone knows what the best course of action is?
Bounded self-control
What is a maximum price enforced by law or some other government intervention.
Ceiling price
What is it called to design the choices that people take in order that they might make better decisions (without losing the ability to choose)?
Choice architecture.
What is the option that will be taken if no conscious decision is taken to change it?
Default choice
What is a good which will be over-consumed in a free market because it is worse for consumers than is commonly understood?
A demerit good
What is a minimum price enforced by law or some other means such as intervention buying?
A floor price
What is the tendency for an individual to be influenced by the context in which information is presented (rather than the information itself) called?
Framing
What is a good that has no cost of production that can be produced at no opportunity cost called?
A free good
What is it called when the benefit of a good or service is not restricted to those who have paid, giving people an incentive to avoid paying in the hope/expectation that other people will, giving them a “free ride”?
The free-rider problem.
What is it called when the cost of government intervention outweighs the benefit?
Government failure
What are mental shortcuts or rules-of-thumb.
Heuristics
What is it called to Ring-fence the revenue from a tax for a particular (and often related) purpose?
Hypothecation
What are the role of prices in changing the behavior of buyers or sellers, for example in triggering an increase in production through higher prices due to an increased profit incentive called?
Incentive function of prices
What is a tax on goods and services, either a fixed amount per unit (unit tax) or a percentage added to the pre-tax price (ad valorem tax)?
An indirect tax?
What is it called when the information available to a decision-maker is incomplete, inaccurate or otherwise unreliable leading to market failure?
Information failure?
What is the idea that any action is likely to result in a reaction other than that which was intended (usually negative)?
The law of unintended consequences.
What is the philosophy that is libertarian in that it promotes freedom to choose, but paternalistic in the sense that it seeks to encourage better choices.
Libertarian paternalism?
What is situation when the consumer must make a conscious decision one way or another before they are able to continue (i.e. there is no default choice)?
Mandated/required choice
