MICROECONOMICS REVISION
PACK
YEAR 2
Chapters
,Key terms ……………………………………………………………….3 - 17
Rational decision making and behavioural economics…………….18 - 28
Production, costs and revenue…………………………...…………..29 - 42
Profit……………………………………………………………………..43 - 44
Technological change and innovation……………………………….45 - 46
Market structures………………………………………………………47 - 70
Contestable markets…………………………………………………..71 - 72
Labour markets………………………………………………………...73 - 99
Income, wealth and poverty…………………………………..…....100 - 112
Market failure and government intervention……………………...113 - 122
1
,2
, Key terms
Rational behaviour - the assumption that consumers will act in a way that maximises utility
when making consumption choices in relation to goods and services
Utility - the satisfaction or ‘happiness’ gained from consuming goods and services
Marginal utility - the additional satisfaction gained from consuming one additional unit of a
good or service
The law of diminishing utility - every additional unit of a good or service consumed will bring
about less additional utility than the previous unit consumed
Imperfect information - when the consumer does not possess all of the facts associated with a
product or service. This might be in relation to availability of substitutes, what constitutes a ‘fair’
price, or the full consequences, positive and/or negative, of consuming the product or service
Asymmetric information - when the buyer, or seller, is in possession of more information than
the other. This is often deliberately concealed from the additional party
Behavioural economics - the study of the psychological aspects of human behaviour to
explain how individuals make choices and decisions
Bounded rationality - recognising the fact that rationality is limited by time and information, as
well as human weakness and the way our minds operate
3
PACK
YEAR 2
Chapters
,Key terms ……………………………………………………………….3 - 17
Rational decision making and behavioural economics…………….18 - 28
Production, costs and revenue…………………………...…………..29 - 42
Profit……………………………………………………………………..43 - 44
Technological change and innovation……………………………….45 - 46
Market structures………………………………………………………47 - 70
Contestable markets…………………………………………………..71 - 72
Labour markets………………………………………………………...73 - 99
Income, wealth and poverty…………………………………..…....100 - 112
Market failure and government intervention……………………...113 - 122
1
,2
, Key terms
Rational behaviour - the assumption that consumers will act in a way that maximises utility
when making consumption choices in relation to goods and services
Utility - the satisfaction or ‘happiness’ gained from consuming goods and services
Marginal utility - the additional satisfaction gained from consuming one additional unit of a
good or service
The law of diminishing utility - every additional unit of a good or service consumed will bring
about less additional utility than the previous unit consumed
Imperfect information - when the consumer does not possess all of the facts associated with a
product or service. This might be in relation to availability of substitutes, what constitutes a ‘fair’
price, or the full consequences, positive and/or negative, of consuming the product or service
Asymmetric information - when the buyer, or seller, is in possession of more information than
the other. This is often deliberately concealed from the additional party
Behavioural economics - the study of the psychological aspects of human behaviour to
explain how individuals make choices and decisions
Bounded rationality - recognising the fact that rationality is limited by time and information, as
well as human weakness and the way our minds operate
3
