Status Quo Bias

prospect-theory

Status Quo bias is an emotional preference for the current situation. In economics, status quo bias can cause individuals to make seemingly non-rational decisions to stay with a sub-optimal situation. For example, over a lifetime, it is rational to save for a pension. However, some individuals may have a reluctance to change their current situation …

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Stop-go policies

Stop-go policies refer to macroeconomic policies which result in economic boom or recession. To manage the economy, the government can change monetary and/or fiscal policy, but the danger is that they might over-react and the economy can go from very fast ‘unsustainable growth’ to very slow/negative growth. Stop-go policies may be linked to the ‘political …

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Substitute Goods

2-substitutes-supply-demand

Definition of substitute goods – Substitute goods are two alternative goods that could be used for the same purpose. Substitutes present the consumer with alternative choices. If the price of one good increases, then demand for the substitute is likely to rise. Therefore, substitutes have a positive cross elasticity of demand. Graph of two substitute …

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Sunk costs

sunk-cost-definition

A sunk cost is an irretrievable cost. Once spent, the sunk cost cannot be recovered when the firm leaves the industry. A sunk cost is incurred in the past and cannot be changed. A non-sunk cost is a cost that will only occur if a particular decision is made. Examples of sunk costs Advertising expenditure. …

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Supplementary Goods

supplementary

Definition – Supplementary goods are two goods that are used together. For example, if you have a car, you also need petrol to run the car. If you have a tv, a supplementary good would be an Amazon widget which allows you access to a much greater range of tv programmes. Examples of supplementary good …

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Supply curve equation

supply-equation-elastic

The market supply curve shows the combined quantity supplied of goods at different prices. The market supply curve is the horizontal sum of all individual supply curves. Linear Supply curve A linear supply curve can be plotted using a simple equation P = a + bS a = plots the starting point of the supply …

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Supply side shock

SRAS-shift-left

An adverse supply-side shock is an event that causes an unexpected increase in costs or disruption to production. This will cause the short-run aggregate supply curve to shift to the left, leading to higher inflation and lower output. Diagram showing supply-side shock SRAS shifting to the left causes a higher price level and lower real …

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Take-up rate of benefits

The take-up rate measures the percentage of eligible people who accept a particular good/service or benefit. The take-up rate may refer to the percentage of shareholders who accept the opportunity to buy more shares during a public share offering. Benefit Take-up Rate The benefit take-up rate measures the percentage of people who claim benefits that …

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