What do economists mean by "opportunity cost?" What are your opportunity costs in taking this course?
Demand v. Quantity Demanded
What is the difference between a decline in the quantity demanded and a decline in demand? Give an example of something that you now buy less of. Is it an example of a decline in the quantity you demand or a decline in your demand?
Behavioral Economics
Traditional economic theory makes a number of simplifying assumptions that may not always be true, e.g., that people always make rational decisions that are in their own best interest. In recent years, a new subdiscipline of economics has emerged called behavioral economics that attempts to employ a more realistic set of assumptions about how people behave to explain economic decision-making.
Based on information in this link (Behavioral Economics For Dummies Cheat Sheet), present two examples from your own experience that illustrate principles of behavioral economics.
Full Answer Section
Demand vs. Quantity Demanded
- Demand refers to the entire relationship between the price of a good and the quantity consumers are willing and able to buy at various prices.
- Quantity demanded is a specific amount of a good consumers are willing and able to buy at a particular price.
Example: If the price of coffee increases, the
quantity demanded of coffee will decrease. However, if consumers develop a new preference for tea, the
demand for coffee will decline, leading to a shift in the entire demand curve.
Behavioral Economics
Behavioral economics challenges the traditional assumption of rational decision-making by incorporating psychological factors.
Example 1: Loss Aversion I've noticed that I'm more upset about losing a small amount of money than I am happy about gaining the same amount. This is consistent with the concept of loss aversion, where people tend to feel the pain of losses more acutely than the pleasure of gains.
Example 2: Mental Accounting I often allocate my spending into different mental accounts, such as "entertainment," "groceries," and "savings." This mental accounting can influence my spending behavior, as I might be more willing to spend on entertainment if I have a separate budget for it.