Economics: Consumer Decision Making
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Questions and Answers

What occurs when people have inaccurate, incomplete, uncertain, or misunderstood data, leading to potentially 'wrong' choices?

  • Asymmetric information
  • Information failure (correct)
  • Moral hazard
  • Principal-agent problem

    • What is the term for the situation where buyers and sellers have different amounts of information?

  • Information gap
  • Asymmetric information (correct)
  • Symmetric information
  • Market failure

    • What is the problem that occurs when being insured makes individuals more careless?

  • Moral hazard (correct)
  • Principal-agent problem
  • Adverse selection
  • Information failure

    • What is the term for the situation where the goals of the principals are different from those of the agents?

    <p>Principal-agent problem</p> Signup and view all the answers

    What type of information is necessary for markets to work efficiently?

    <p>Symmetric information</p> Signup and view all the answers

    What is the consequence of information failure in a market?

    <p>Misallocation of scarce resources</p> Signup and view all the answers

    What is the term for when one party in a transaction has more information than the other?

    <p>Information Asymmetry</p> Signup and view all the answers

    What is the term for the problem that arises when the agent's goals are not aligned with the principal's goals?

    <p>Principal-Agent Problem</p> Signup and view all the answers

    What is the term for the situation where there is incomplete or asymmetric information in a market?

    <p>Information Failure</p> Signup and view all the answers

    What is an example of a government policy to address information failure?

    <p>All of the above</p> Signup and view all the answers

    What is the purpose of hard-hitting anti-speeding advertising campaigns?

    <p>To raise awareness of the risks of drink-driving</p> Signup and view all the answers

    What is the purpose of consumer protection laws?

    <p>To address information failure in the market</p> Signup and view all the answers

    What would cause a contraction of the Production Possibility Frontier (PPF)?

    <p>A decrease in the quantity of the factors of production</p> Signup and view all the answers

    What assumption of rational consumer behaviour states that consumers have fixed and consistent preferences?

    <p>Consumers make all choices independently</p> Signup and view all the answers

    What is the law that states that as a consumer buys and consumes more units of a good, the extra satisfaction gained diminishes?

    <p>Law of Diminishing Marginal Utility</p> Signup and view all the answers

    What is the term for the total satisfaction a consumer gets from purchasing units of a good?

    <p>Total utility</p> Signup and view all the answers

    What is the result of a rational consumer aiming to maximise their total utility?

    <p>They will make optimal choices given their preferences</p> Signup and view all the answers

    What is assumed in rational consumer behaviour about the information consumers have?

    <p>Consumers have full information</p> Signup and view all the answers

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