Chapter 2

Question 1

Economic Institutions

Answer 1

The set of rules, regulations and principles that govern economic activity

Question 2

Assumptions

Answer 2

Claims made with no means of verifying their truth, or with a view to simplifying the study of complex relationships

Question 3

Neoclassical economics

Answer 3

A late 1800s school of thought which analyses economic issues with a focus on the individual, who is assumed to be rational

Question 4

Individualism

Answer 4

A foundation of society that favours individual freedom and competition in the way it organises its economy, over the action of the government and other institutions

Question 5

Utility

Answer 5

The measure of success economic agents such as consumers and workers maximise, according to neoclassical economics

Question 6

Preferences

Answer 6

The utility or value a consumer derives from consuming a good or bundle of goods or services

Question 7

Rational

Answer 7

The quality of idealised individuals who never make mistakes or act in ways deemed unreasonable

Question 8

Ratio

Answer 8

Latin word for reason

Question 9

Homo economicus

Answer 9

The idealised consumer in economics who is rational and has full information ‘The economic man’

Question 10

Willingness to Pay (WTP)

Answer 10

The value in monetary terms that consumers assign to an addition to their own amount of a good