T3 Flashcards
(16 cards)
What is over-confidence bias (irrational behaviour)?
when people think they know more than they actually do, leading to risky decisions
What is Loss aversion (irrational behaviour)?
people hate losing money more than they like making money
What is Herd Behaviour (irrational behaviour) ?
when individuals follow what others do, like buying a popular stock just because everyone else is
Total Utility?
overall satisfaction a customer gets from consuming a good or service, the higher it is the more the person values the service
Marginal Utility?
additional satisfaction gained from consuming one more unit of a good or service, (less satisfaction gained from every unit)
What is the law of demand?
if prices go down, people buy more
if prices go up, people buy less
Demand curve is downward sloping, why? (explain using law of diminishing marginal utility)
less additional satisfaction you get from each extra unit of the service, making people less willing to pay ,decreasing demand
If prices change what happens to demand curve?
results in a movement ALONG the demand curve, not a shift of the curve itself
What are reasons demand may shift?
- Other substitutes may change their prices
- Government intervention (taxes or subs)
- Changes in Consumer Income
- Population changes
Demand curve is upward sloping, why?
For some inferior goods, if the prices rise people may buy more as they can’t afford expensive substitutes
What happens to supply if prices change?
If prices go up, supply is increased to maximise potential income
If prices go down supply is decreased as money made is limited
What causes supply to shift?
- changes in production costs
- technology advancements
- taxes or subsidies
Define Producer Surplus
The difference between the amount that producers are willing to accept for a good(cost)
and the actual amount they receive from selling it, aka (market price - min price)
Define consumer surplus
The difference between the amount that consumers are willing to pay/perceived value and the actual amount they pay, aka consumer = willingness to pay - market price
Define revenue
Revenue is the total income generated by a firm from sale of its goods or services over a specific period
Define PED - and formula
PED measures the responsiveness of demand a change in price PED = % change in Q.D/ % change in price
