lesson 1-2

Question 1

the economic problem

Answer 1

wants are unlimited and resources are limited

Question 1

what is the difference between macro and micro economics?

Answer 1

macro- focused on the economy as a whole and how it behaves
micro- is concerned with the actions of individuals and businesses

Question 2

ceteris paribus

Answer 2

when we model a change we assume everything else stays constant and we only focus on that ONE SPECIFIC change and its effect of it

Question 3

what is interest rate?

Answer 3

price of money

Question 3

who controls interest rates?

Answer 3

the bank of England
the bank may raise interest rates because they wish to stop house prices from rising

Question 4

what is a mortgage?

Answer 4

a big loan to buy a house

Question 5

how would the law of demand work as a chain when mortgage prices increase?

Answer 5

1. cost of a mortgage increase
2. demand to buy houses goes down
3. house prices will either stop rising or drop

Question 6

positive statements

Answer 6

something which can be proven

Question 7

normative statements

Answer 7

based on opinions so hold a certain bias

Question 8

what is a demerit good?

Answer 8

something that does not benefit society/ bad for the consumers

Question 9

what is at the heart of traditional economic theory?

Answer 9

that consumers always act rationally. this means people try to make decisions to maximise their personal benefit so the best alternative is chosen and they are left with an opportunity cost

Question 10

what is rational behaviour?

Answer 10

attempting to maximise utility gained from the goods and services consumed

Question 11

what is utility?

Answer 11

pleasure/satisfaction

Question 12

what does behavioural economics do?

Answer 12

it observes behaviour and real world making decisions
includes ideas of nudging, bounded rationality, bounded self-control, thinking fast and slow and bias in decision making

Question 13

ideas included when thinking about behavioural economics

Answer 13

includes ideas of nudging, bounded rationality, bounded self-control, thinking fast and slow and bias in decision making

Question 14

what is nudging?

Answer 14

influencing citizens into making more beneficial, easier choices

Question 15

what is the reality of bounded rationality?

Answer 15

we’re not fully rational which leads to suboptimal decisions which do not lead to the best outcomes.

Question 16

what is cognitive bias?

Answer 16

holding onto your own personal preferences and beliefs regardless of contrary opinion

Question 17

what is status-quo bias?

Answer 17

we like things to stay the same

Question 18

what is conformation bias?

Answer 18

listening to opinions that back up your pre-existing views

Question 19

what is negative bias?

Answer 19

we pay more attention to bad news

Question 20

what is availability bias?

Answer 20

expecting future events because we can recall examples of similar events

Question 21

what is memory bias?

Answer 21

remembering events associated with emotions

Question 22

what is current moment bias?

Answer 22

when we prefer pleasure now compared to pleasure later

Question 23

what is anchoring bias?

Answer 23

when we compare and contrast only a limited set of items and tend to rely on the first piece of information (the first piece of information is the anchor)

Question 24

the 8 types of bias

Answer 24

1. cognitive
2. status-quo
3. confirmation
4. negative
5. availability
6. memory
7. current moment
8. anchoring

Question 25

what is choice architecture?

Answer 25

choices presented to consumers so they’re nudged to opt for choices that are in their best interest to achieve a socially desirable outcome

Question 26

what is economic welfare?

Answer 26

the differences in living quality, infrastructure, education, average life expectancy, crime rates, environment, housing quality and average hours a week of work you do

Question 27

what is productive efficiency?

Answer 27

maximising output from the resource used

(an economy is productively efficient if it operates on its production possibility curve, it has no spare capacity and is average costs are minimised)