Micro A2

Question 1

Rational behaviour

Answer 1

Acting in pursuit of self interest which for a consumer means attempting to maximise welfare satisfaction or utility gained from goods or services consumed

Question 2

Utility

Answer 2

The satisfaction or economic welfare an individual gains from consuming a good or service

Question 3

Marginal utility

Answer 3

the additional welfare, satisfaction or pleasure gained from consuming one extra unit of a good

Question 4

When is utility maximised

Answer 4

When the marginal utility is 0

Question 5

Law of diminishing marginal utility

Answer 5

Marginal utility at first rises but then falls with consumption

Question 6

Constraints of utility maximisation

Answer 6

Limited income 
Given set of prices
Budget constraints 
Limited time
(Info?)

Question 7

Asymmetric information

Answer 7

When one party to a market transaction possesses less information relevant to the exchange than the other

Question 8

Behavioural economics

Answer 8

A method of economic analysis that applies psychological insights into human behaviour to explain how individuals make choices

Question 9

Bounded rationality

Answer 9

When making decisions an individuals rationality is limited by the information they have, their minds and the time available

Question 10

Bounded self control

Answer 10

Limited self control in which individuals lack the self control to act in what they see as their best interests

Question 11

Cognitive bias

Answer 11

Mistake in reasoning or thought process occurring as a result of using a rule of thumb or holding onto a belief or preference despite evidence

Question 12

Availability bias

Answer 12

Individuals make judgments about the likelihood of events occurring based on how easily they can remember a similar event

Question 13

Anchoring

Answer 13

Tendency to rely too heavily on the first piece of evidence offered

Question 14

Economic sanctions

Answer 14

Restrictions imposed by regulations or laws that restrict an individuals freedom to behave in certain ways

Question 15

Nudges

Answer 15

Factors that encourage people to think and act in certain ways, they try and shift peoples behaviour to comply with desired patterns

Question 16

Choice architecture

Answer 16

A framework setting out different ways in which choices can be presented to consumers and the impact that presentation on the consumers decisions