unit 1 aos 3

• Elasticity


  An economic concept used to measure the change in the aggregate quantity demanded of a good or service in relation to price movements of that good or service
• Why market structure is important

  • Lower prices
  • Better quality goods
  • Superior service for consumers
  • Greater efficiency in allocating scar
  • Higher levels of production and nation output
  • Better material living standards (income, life expectancy and birth rates)
• Strong competition


  Promotes efficient resource allocation to lower production costs in order for businesses to survive and thrive
• Economies of scale


  Oligopolies and monopolies can leverage to achieve efficiency
• Competition


  Drives rivalry and can lower prices and increase purchasing power
• Monopolies


  Lack competition and therefore have no motivation to compete on price
• Oligopolies


  While having some competition, can be motivated to collude and use anti-competitive behaviour, which strict/negate competition and increase prices
• Lower prices


  Can increase purchasing power, consumption and therefore living standards
• Strong competition


  Requires the quality of your offering be equal to or better than the competition
• Monopolies and oligopolies


  Little or no product choice alternatives meaning the consumer has to put up with whatever quantity is provided
• Strong competition


  Can result in greater output of particular goods or services
• Weak competition


  The presence of monopolies and oligopolies tend to reduce the total supply of goods and services than otherwise seen due to higher prices being charged
• Strong competition or rivalry


  Usually leads to higher levels of GDP and hence less unemployment of resources
• Weak competition


  Can equal lower efficiency and higher prices, which can underdetermine international competitiveness of local firms trying to sell their products overseas
• Weak competition


  Equal decreased exports, which equal reduced GDP and income
• Strong competition


  Equal increased exports from lower costs and prices, which equal increased GDP and income
• How competition improves living standards

  • Ensures resources are used efficiently
  • Production costs and prices are lower
  • International competitiveness is strong
  • National output and incomes are higher
• Traditional economic theory


  Predicts that consumers behave rationally, are self-interested, want to maximise utility, dislike pain, have ordered preferences, and have perfect knowledge/information relating to their decision, and do not act on impulse
• Behavioural economics


  Concerned with the limits of the consumer to think logically and make rational decisions
• Biases or factors in behavioural economics

  • Bounded rationality
  • Bounded willpower
  • Bounded self-interest
  • Status quo bias
  • Herd bias
  • Framing bias
  • Nudge theory
  • Narrative theory
  • Overconfidence bias
  • Vividness bias
  • Short-term/ present bias
  • Risk or loss aversion bias
  • Anchoring effect
• Bounded rationality


  Individuals often act irrationally, ignoring cost-benefit analysis to optimise their choices, instead opting for short cuts and satisfactory outcomes
• Bounded rationality


  • Often poor time
  • Sometimes lazy
  • Lacking complete information or fake information
  • Influenced by others opinion
  • Lacking analytical or academic abilities to be able to weigh up all the information
• Bounded willpower


  Refers to consumers acting on temptation and impulsively
• Bounded willpower


  • Purchases (buying an item that is interesting however, could've waited for a sale)
• Bounded self-interest


  Limits associated with a person's selfishness. That is, traditional economics consider people to be inherently selfish but that does not always hold true
• Bounded self-interest


  • Giving to charity
• Status quo bias


  Follow previously made decisions
• Status quo bias


  • Purchasing the same brand of milk each time
  • Sometimes go on holidays to the same destination
• Herd bias


  Individuals follow trends and the rest of their peers so that you don't stand out
• Herd bias


  • Fashion trends
  • Share market
• Framing bias


  The idea that consumers make decisions based on how information is presented
• Framing bias


  • Discount
  • Harsh tones vs soft tones
• Nudge theory


  Refers to the gentle strategies designed to guide people's decisions, whilst still allowing them to have freedom of choice
• Nudge theory


  • Supermarkets placing their candy display at the checkout queue
  • Text message reminders from doctors to dentists offices
• Narrative theory


  Narrative fallacy occurs when individuals place a great deal of importance on a story or narrative, rather than the cold hard relevant facts
• Narrative theory


  • Australians often fall for the 'get rich quick' schemes and 'how to avoid text' seminars where they spend money, only to lose it all later
• Overconfidence bias


  Refers to when consumers overestimate their current state of knowledge or skill, which leads them to make poor and non-rational choices
• Vividness bias


  When consumers are hyper focused on a small piece of information which has stood out to them. Other important considerations in the decisions are downplayed, which may lead to irrational decisions
• Vividness bias


  • Using italicised or bolded text to manipulate users to make decisions that are not necessarily part of the complete picture
• Short-term/ present bias


  Refers to when consumers have a bias towards more immediate benefits (ie instant gratification) rather than making a long-term assessment that could be more, beneficial and ration