Exerc i se 3 .
3 What are the key assumptions behind the theory
~ Th1nkmg and Commun1cat1on
Which phone should I buy?
Homo economicus will:
~ know exactly what she
wonts from her phone
~ research the capabilities of
all the different phones
~ understand all the
information that is provided
~ be able to compare all the
models
~ know the prices of each
and every phone on the
market
~ know how long each phone
will last
~ know what she will need
from her phone in two years
~ be able to know which
phone makes her happiest.
In pairs, discuss how realistic
the statements above are.
What difficulties might homo
economicus face?
How realistic are the key assumptions of the
of demand?
As was explained in the first chapter, economic models are developed
to explain economic behaviou r. In creating these models certain
assumptions have to be made in order to test and validate the
hypotheses that are needed to generate economic theories.
In neoclassical theory, key assumptions are made about the way in which
consumers, as economic "agents", make their choices. In this standard
economic model, it is assumed that consumers behave rationally. This
means that faced with an economic decision, consumers are able to
consider all the possible options and work out which option will give
them the most satisfaction, or utility. In other words, consumers will
always seek to maximize their utility. In making their decisions, it is
assumed that consumers act only in their own self-interest; they do not
take into account the interests of others. Furthermore, it is assumed that
when making decisions or choices, consumers have access to all the
relevant information about each of their choices. This is known as the
assumption of perfect information. In the standard model, this rational
consumer is known as homo economicus. When faced with choices, it is
assumed that homo economicus will make intelligent, logical and well-
considered decisions that give them the most utility.
What is behavioural economics?
Richard Thaler is regarded as a pioneer in the field of behavioural
economics and won a Nobel Prize for his work in 2017. He refuted the
notion that consumers are "rational maximizers" who are essentially
mathematical machines able to carefully calculate every decision to enable
them to maximize their utility. He observes that a problem with the field
of economics is that it studies the behaviour of people that simply do not
exist, presenting the view that there is no such person as homo economicus.
We are all homo sapiens! In everyday English, he uses the terms "Econs"
for homo economicus and "Humans" for "real people". According to Thaler,
Econs and Humans exhibit the following characteristics:
. Econs (non-existent, according to Thaler}
. Humans (all of us! J
. Are rational
. Have bounded rationality
. Have perfect information
Are extremely intelligent, and able to perform . Have incomplete information
Are not as intelligent as Econs
. complex calculations quickly
. Have limited ability to carry out
. Seek to maximize their own utility
Make decisions based on their own self- .
complex calculations
Are social beings, and make
interest
. . decisions in a social context
. Have consistent preferences over time
. Change theirtastes over time
. Have no self-control problems
Are unbiased
May have self-control issues
rational consumer model?
One key assumption of the standard economic model that is challenged
by what actually happens in the real world is that of perfect information.
This is the assumption that all economic agents have access to all the
same information at the same time. This would imply that consumers
have perfect information about the price and quality of all products
in the market. There are several problems associated with this. One
is that in the real world, there are "information asymmetries" where
different economic agents (consumers, producers and the government)
have different levels of information available to them where economic
transactions are concerned. Another relates to the fact that even if all
the information were available, humans face limits in terms of how
they can actually process the information that is available to them. In
today's world, with the Internet providing access to seemingly infinite
information, we often face the situation of information overload.
Therefore, in the real world, consumers make decisions based on
imperfect information.
Consumers face huge challenges in making economic choices and
are unable to make decisions in the rational manner assumed by the
standard economic model. The term bounded rationality is used to explain
the notion that the rationality of consumers is limited by the information
that they have, and the fact that they do not have the time nor the
cognitive abilities to weigh up all the options.
In the standard economic model, humans act in their own self-interest.
In other words, consumers are assumed to act selfishly, only taking
their own objective of utility maximization into account when making
choices. In fact, humans do care about others. We volunteer work, we
give to charities, we buy Fairtrade products because we are concerned
about the wellbeing of farmers. All of these show that the assumption
of self-interest may be challenged. The term bounded selfishness is used
to explain that humans do not always act in their own self-interest as
assumed by the neoclassical model.
Finally, it is assumed that when acting rationally, consumers are able
to demonstrate perfect willpower. In reality, consumers are unlikely to
be able to do this. We use the term bounded self-control to illustrate this
natural tendency to give in to temptation sometimes.
Exercise 3 .4 ~ Thmkingand Commumcat1on
Economic Man vs Humanity: a Puppet Rap Battle
Watch this creative rap video from Kate Raworth, the author of Doughnut
Economics, to understand limitations of the assumption of rational human
behaviour:
https://youtu.be/Sx13E8-zUtA
 Exercise 3.5 ;:"' Thmkmg and Commumcat1on
You would use reflective thinking to:

Would you like.a Cajje Lotte, Americano, Cappuccino, Espresso, Flat White, Long Black, controlled Answer the question, "What is
Mocha, Macchtato, Mochaccino, Frappuccino, Small, Medium, Large, Takeaway? calculating
1989 times 31 ?"
deliberate
Choose your IB subjects
System 2: Reflective Have a conversation in a second
language in which you are not
slow logical fluent.

unemotional

JJ.. Figure 3.10 The Automatic System and the Refiective System

Neoclassical economists would claim that rational consumers make all

their decisions using reflective thinking. However, this is obviously not
the case. When people have important and complex decisions to make,
they usually use elements of the Reflective System and take their time
to make a decision. However, sometimes they let the Automatic System
Is it possible to have too much choice? What problems do people have to face when take over and this can result in poor decision-making.
they are presented with a vast range of choices? Does it make the decision easier
or more difficult? This is particularly a problem when we make a short-term decision too Exercise 3.6
quickly, without considering the long-term effects. For example, if you ~ Thmkmg and Commumcat1on
have decided to go on a diet to become more healthy and you are offered
something like a doughnut that you eat because you just can't resist Try to think of a choice that you
How can the "Dual System Model" explain how have made and then regretted
it, then you are using your automatic thinking. Obviously, you should
humans actually act? reflect on the decision and come to the rational decision that the short- afterwards. Using the terms
term benefit from the doughnut is not worth the longer term loss of System 1 thinking and System
In order to explain why Humans make decisions that are different 2 thinking, explain how you
from Econs, behavioural economics draws on the experimental work remaining overweight.
might have chosen differently.
of P.~ychologists Daniel ~ahneman and Amos Tversky who developed On a day to day basis, we make thousands of decisions, and have to cope
the dual s~stem model . According to this model, individuals actually with a tremendous amount of information. In order to make them quickly,
have ~o drfferent systems of thinking, known as System 1, the fast we employ certain mental "rules of thumb". The rules of thumb that we
thinkmg system, and System 2, the slow thinking system. use to make quick decisions are also known as "heuristics". A heuristic
In his book, Nudge, ~chard Thaler calls System 1 the "Automatic System" may be defined as a mental shortcut that allows people to make decisions
and Sys.tem 2rs the Reflective System". The Automatic System involves and solve problems quickly and efficiently. However, there are "cognitive
fast decrswns that.are essentially subconscious. The Reflective System biases" implicit in the short cuts we employ that may be problematic and
mvolves slow decrsrons that are much more controlled. The characteristics result in poor decisions. If we let our impulsive automatic thinking take
of each of the types of thinking system are illustrated below: over when making an important decision, we might make choices that we
will regret later. Impulse buying is an example of this.
You would use automatic thinking to:
Answer the question, "What is What are the cognitive biases that affect
three plus four?" gut intuitive
instinct decision-making?
Get home from school on the route effortl ss
uncontrolled Psychologists have identified many biases that affect consumer choices.
that you have taken every day for
the last year System 1: Behavioural economics uses the understanding of these biases to help
Automatic consumers make better choices.
Speak in your mother tongue
fast Some of these biases are:
Do your grocery shopping.
Availability bias
The availability of recent information and examples tends to.over- I
influence people's decision making. If there is a case of salmonella
Ill
 in one part of a country, consumers might assume that it will occur
nearby and they might choose different food options as a response,
even if there is absolutely no risk in their area. It turns out that
consumers are actually quite poor at assessing risk and probabilities,
relying on recent examples rather than carefully-examined data. A
common example is young smokers, who see a much older person
who is also a smoker. It is quite possible for the young smokers to
delude themselves into thinking smoking is not dangerous, despite
all the information to the contrary, because the older person is ,
perfectly healthy.
Anchoring bias
Anchoring occurs when we are given the value of something, and
then use this value as a reference point to influence future choices
or decisions. Once an anchor value has been set in our minds, we
tend to rely too much on it, and this can lead to poor decisions.
Supermarkets use awareness of this bias in their pricing. Consumers
anchor certain prices in their minds, and when there is a sale and
the price drops, the consumers feel that they are getting a very good
deal and may purchase more than they really need. Salespeople use
this when prices are negotiable by offering a very high starting price
and then accepting a lower price that is still higher than what the
product should cost.
Framing bias
The way that information is presented to us influences our choices.
In many cases, especially where data is presented, a given piece of
information may be presented in either a positive way or a negative
ics in action way. When information about a product is framed in a very positive
manner, it will lead consumers to think more positively about the
mg, Commun1cat1on
esearch product. Evidence of this can be seen in all kinds of marketing and
advertising. If you see that a particular yoghurt is labelled as "90%
cognitive biases fat free" , it will be a lot more appealing than a label which says,
·e n listed here. "contains 10% fat". Although the product would be identical, the
framing of the information induces a cognitive bias.
i your own
nples of how
Social Conformity/Herd behavior
:e cognitive biases
As consumers, we naturally want to fit in. The way that others
Jence people.
behave can exert a powerful influence on our own choices. It can be
se are not the
very gratifying and rewarding to be like others. There is evidence of
' cognitive
this herd behaviour (wanting to be part of a "herd") everywhere. An
es that influence
obvious example would be changing clothing fashions. Producers
iecisions that
;umers make.
are able to convince people to buy more clothes in order to fit into
the new styles, even when their own clothes are perfectly good! This
~arch others,
is also known as the "Bandwagon Effect" and is used to describe the
explain their
behaviour of people when they join a perceived majority of people
tence.
in doing something, even if it is against their best-interest.
Status Quo/Inertia bias
It is often the case that consumers, faced with a bewildering set of
choices, would prefer to maintain the status quo by doing nothing.
An example would be what a consumer might do when their
mobile phone contract expires. It could be a very good time for the
consumer to investigate other options, and maybe consider entering
into a contract with another mobile service provider. However, faced
with the challenge of researching into all the available options, it is
quite likely that the consumer will prefer just to stick with the same
provider, even if something else might actually provide more utility.
Loss aversion bias
Experiments show that humans feel that losses are far more
significant than gains. It has been estimated that the pain that
people feel from losing something is psychologically about twice
as powerful as the pleasure that they get from gaining something.
This leads to the situation where people might make poor choices
because they fear that they will lose something, even if their
reasoning is not well-informed. This is linked to the status quo bias,
as consumers may be reluctant to change the status quo due to the
fear of loss. Businesses can take advantage of this bias by making
consumers feel that they will lose something if they don't purchase
a good. If you see a sign saying, "Buy now before stocks run out!",
you should be aware that the producer is trying to make you feel Exercise 3 .7
~ Thmkmg and Commumcat1on
that you will lose out if you don't take advantage of their offer.
This picture was taken in a
Hyperbolic discounting local supermarket. How has
This is a very fancy name for something that everyone can relate the company taken advantage
to. It refers to the tendency of humans to prefer smaller short-term of cognitive biases to try to get
rewards over larger later rewards. If your Economics lA is due the consumers to buy the product?
day after tomorrow and you haven't even started it, you should Research Black Friday and
probably get started right away- at least decide on the article you Singles' Day. How do retailers
are going to analyse. However, you decide that you would prefer to take advantage of any of the
go out this evening and enjoy yourself, as you convince yourself that cognitive biases on these days?
you will do a much better job in the morning. This is an example of
hyperbolic discounting- you prefer the short-term reward of a night
out, rather than the longer-term reward of getting the work finished.
This cognitive bias is even more powerful when the reward is much
further in the future.
How can behavioural economics be used to help
consumers make better choices?
Given the many cognitive biases which cause consumers to make poor
choices sometimes using their System 1 (automatic) thinking system,
behavioural economics aims to help consumers make better choices. One
way of doing this is to alter the choice architecture that consumers face.
II
 What is choice architecture?
Choice architecture is the theory that the decisions that we make are
heavily influenced by the ways in which the choices are presented to us.
We make many decisions every day but we might not realize the extent
to which those choices are influenced by the way that someone, referred
to as a "choice archi teet", presents the choices to us.
A very simple example from supermarkets can be used to explain
the term. When you shop in a supermarket, you will find all kinds 9f
products right at the cash desk that encourage you to "impulse buy".
They are not there by accident; the "choice architect" has placed them
there because it is assumed that while you are waiting there, you will
be tempted to buy those products. This is especially the case if they are
chocolate bars or candies and you are waiting with a small child who
will have a temper tantrum if you don't buy them!
An example of an area where choice architecture can be observed is
when a default choice is changed. There are two ways of explaining
the default choice. One is that it is the pre-set option that is effectively
selected if the decision-maker does nothing. In other words, it is what
you get if you do nothing. For example, Coogle is the default search
engine on many browsers- it does not have to be selected, it opens
automatically. The second is that it is the choice that is always followed
unless a deliberate decision is made to change it. In other words, you
carry on making the same choice because it is a habit. For example,
if you always get a caffe latte when you go to the coffee shop, then it
becomes your default option.
Although the default options do not always result in a good outcome,
they are very popular for many reasons. The status quo bias described
earlier can be very powerful. Consumers may not have the time or the
resources to research alternatives, they may lack the cognitive skills to
understand the alternatives, they may lack the courage to make changes,
they are comfortable with what they normally choose and they generally
like the easier options!
Consider the case of organ donation. There is always a shortage of
organs for organ transplants. One way to increase the supply of organs
available for transplants is to increase the number of people that consent
to donate their organs in the event of their death. There are different
systems for doing this. One system is the opt-in / opt-out approach. If
a country operates an opt-in system, it is the responsibility of people
to actively sign up to the organ donation register. This allows hospitals
to use their organs for transplants after death. In an opt-out system,
organs will automatically be donated unless people make a specific
request before death that their organs should not be taken. If a country
operates an opt-in system, then opting-in is the default option. If people
do ~othing, then their organs cannot be used, as they will not have given
thetr consent. Changing the default option from opt-in to opt-out is seen
as one way of using choice architecture to increase the number of people
who consent to having their organs donated.
Another way in which choice architects can influence consumers
is through mandated choice. These are situations where people are Economics in action
required by law to make a choice in advance. In the example of an ~ Thinking, Communication
organ donation, people are required by law to mdiCate tf they are ~ and Research
willing to become an organ donor in the event of their death. The way
A global problem is a
that the government can do this is by requiring people to tick a box
lack of organs for organ
to say whether or not they are willing to be donors when they renew
transplants. Using
their driver 's licences. Although many people would like to be organ
the theory of choice
donors, when left to themselves to register as donors, many do not
architecture, explain
make the effort to indicate this choice. When the choice architects force
the ways that different
people to make the choice, the number of organ donations increases
governments approach
substantially.
this problem and identify
which method you think
How can people be encouraged to make better choices? is the best. Justify your
Nudge theory was developed by behavioural economist Richard Thaler. choice.
The theory suggests that the choice architecture offered to people can be
carefully designed to gently encourage (nudge) the people to voluntarily
choose the option which is better for them. Behavioural economics in
general, and nudge theory in particular, became much more well-known
and accessible to the general population following the publication of .
Richard Thaler and Cass Sunstein's book Nudge: Improving decisions about
health, wealth and happiness.
The key to nudge theory is that consumers maintain their consumer
sovereignty (their right to choose) but are encouraged to make ~~tte~
decisions. A commonly cited example of this relates to the posttlonmg
of food in a school cafeteria. If healthy foods are placed in a very
convenient, easy-to-reach, easy-to-see place, evidence shows that
students will consume more of them. They are not forced by anyone
to choose the healthy foods, but the placement "nudges" the students
subconsciously to choose them. The key thing is that the students are
not forced to choose the healthy option, but they do it themselves. The
argument is that students are more likely to pick up healthy habits if
they are making the choices themselves.
When designing positive choice architecture, the "architects" must
essentially override certain cognitive biases. If consumers use their
System 1 thinking system and subconsciously fall back on rules-of- The cover of Nudge, by Richard
Thaler
thumb which cause them to make poor decisions, then they may need to
be nudged towards better decisions.
A good example where nudges have been used to help people make More Evidence That
better decisions is in the area of pension savings. 1n many more Menu Design Can Nudge .
economically developed countries, governments provide pension Us Toward Better
schemes that are designed to allow people to have a decent standard Choices
of living when they retire. However, these pensions schemes are under hllps://www.forbes.com/sites/
maisieganzler/20 19/07/25/more-
considerable threat due to the fact that people are living longer, and evidence-that-a-me nu-design-can-
governments are unable to finance the pensions. Therefore, there is a nudge-us-toward-better-choic-
need for people to set up private savings schemes to ensure that th~y es/#2d7 a9l6b52a l
•

y of knowledge
theory has been
bed as libenarian
a/ism. How can both
"libertarian" and
1alism" be perceived
1ely? Despite the fact
th of the words have
1egative connotations,
ents of nudge theory
'PY to call it "libenarian
1lism". How do they
:his?
mics in action
mg. Commun1catron
Research
have enough money when they retire. A rational "Econ" would be able
to calculate how much they are going to earn over their working life,
work out how much they will need when they retire, and have the will-
power to set aside just enough money each month to ensure that they
have enough money when they retire. But we know that humans do
not work like this. Despite all good intentions to save, there are several
reasons why people do not save for their future.
Firstly, because of the hyperbolic discounting bias, people do not like to
save for the future, because it means that they are giving up rewards in
the present. The further away retirement is (that is, the younger people
are), the less likely they are to save money. The temptation will always
be to say that they will start saving later. Secondly, if people have to cut
their spending in order to save, they are likely to consider this as a loss
and because of the loss aversion bias they are not likely to be prepared to
accept this loss of consumption in the present.
Richard Thaler and fellow behavioural economist Shlomo Benartzi
developed the "Save More Tomorrow (SMT)" scheme in the United
States as a way of nudging people to save money for retirement.
Under this scheme, which companies can offer their employees,
people are encouraged to start saving early in their working lives.
This scheme addresses the problem of the hyperbolic discounting bias
which discourages people from saving early. In the beginning, the
pension contributions are quite small. But whenever the workers get
a pay rise, there is an automatic increase in the pension contribution.
overnments have an important role to play in the functioning of
~arkets and those who believe that market forces operate efficiently
on their own. However, behavioural economists argue that the behef
that markets operate efficiently on their own is based heavily on the
assumption that consumers act rationally and this assumption can ~e
easily challenged. Their vast experimental work shows how the msights
from psychology can be used to select car~fully ~esigned and tested .
interventions to nudge consumers m the nght duechon, w1thout takmg
away their rights to choose.
Economics in action g Thinking, Communication and Research
Nowadays, many people are "voting with their dollars" (or renminbi
or pesos or rupees or euros) where they indicate their beliefs to
producers by buying (or not buying) their brands. This has also been
referred to as ethical consumption or "belief-driven buying".
In the 2018 "Edelman Earned Brand Report" based on surveys of
consumers from Brazil, China, France, Germany, India, Japan, the UK and
Key concept 0
the US, it was demonstrated that an average of 64% of consumers choose, .
switch, avoid or boycott a brand based on its stand on societal issues.
CHANGE
Belief-Driven Buying
.. 20 17 .2018
Now Mainstream Around the World
Percent who are belief-driven buyers, and year-to -year change ~ D-GY·tn·Y(hange

Without doing anything deliberate, those workers will be saving more.

1re countless However, because they are not experiencing a loss in income (the
Majority in M@flN
1318
les of the ways extra saving comes from the salary increase) the loss aversion bias is

1 t~~ tl
64 60
:h nudge theory 59 51
addressed. Each time there is a pay increase, there is an "automatic 54
m adopted, by escalation" of the pension contribution. Another key element of the 31 31
>Vernrnents and scheme is that workers can opt in to the scheme, and opt out at any
~ations all around time. This maintains their consumer sovereignty, which is considered Double-digit growth
in 6 of B markets
rid. Compile a list to be a requirement when a policy is considered a "nudge". Research 8-market China Brazil India France Japan u.s. U.K. Germany
1ples from three shows that this scheme, along with other nudges designed by average

1t countries, and behavioural economists, has had tremendous success in raising pension
how your chosen As the graph suggests, the percentage of consumers who care .
contributions. The change in choice architecture, which nudges people
s" meet the enough about issues to change their buying habits has grown m all
towards an easy choice of opting into a scheme, will help people to
ments of getting eight of the surveyed economies. This suggests that demand can be
guarantee a more comfortable future.
1ers to voluntarily a force for positive change on the issues related to social justice that
their behaviour The work on nudge theory by behavioural economists has had a consumers care about.
itive way. Try big impact on governments and organizations all around the world
For example, consumer concern about the impact of single-use plastics
mdgesfrom who are now nudging people in countless ways to help people make
was instrumental in incentivizing coffee chains to promote the use
t areas, eg nudges "better" decisions. These have contributed to improvements in people's
of reusable cups and stop offering plastic straws to their customers.
nake people standards of living, their health, their communities and the environment.
Producers, seeking to maintain demand, are paying much more
nudges to help Nudge theory is not without its critics. Any form of government attention to their use of plastics at all levels of production, and this
! communities,
intervention may be accused of taking away individual rights. There is may be instrumental in reducing plastic waste. In this way, consumer
to promote also the concern that governments do not actually know what is best demand can contribute to positive changes in terms of sustainability.
bility. for.p~ople and so cannot be trusted to choose how to nudge people.
This IS a good example of the debate between those who believe that

Il l
 Of course, the cynical among us will say that the producers have no
genuine interest in the environment or other social issue and they
are only doing it to increase their profits. But if positive change is
the result, does it matter wha t their main goal is? (There is no right
answer to this question!)
1. Have you ever purchased a product because the company , conclusion. Ouestions that begin with "evaluate", "discuss", "to what extent",
showed concern for an issue that you care abo ut? Ask around to
see if others have done the same.
As_sessment advice: Paper 1 - Essay questions
You have already been introduced to Paper 1, which is divided into two parts. In
Chapter 1, there were examples of part [a] questions. In part (b) you are expected
to go a little further.
Part [b) invites the use of the skills of evaluation and synthesis. These are higher
order skills that you should practise a great deal. Evaluation is a process that
involves careful consideration of a topic or issue with a view to forming a balanced
"compare", ~~ contrast'\ "compare and contrast", "examine" and .,justify" are all
questions requiring this higher order skill.

2. Have you ever thought about not buying a product because the
company showed a lack of concern about something that you think
is important? Ask around to see if others have done the same.
3. Find an example of a company that has responded to consumer
concerns about a social issue by changing what it produces or
the way it produces.
In part (b]. you will also be expected to identify and develop relevant real-world
example(s] to support your argument or conclusion. These should be the examples
that you have come across through the inquiries that you have carried out
throughout your economics course.
Remember that in part [a] and part [b) answers, it is necessary that you use
diagrams to support your explanations. There will be very few questions where a
diagram is not appropriate and needed.

Which social issue is the company responding to (eg

sustainability, gender equity, racial equity)?
How is it responding?
How can you determine if the company behaviour is
contributing to a positive change?
of knowledge
1nism is a philosophy stemming from the
philosophers and economists, Jeremy Bentham
1832] and John Stuart Mill (1806-1873] . 1t has
ions in economics. Utilitarianism tries to answer the
1, "What should a person do?" The utilitarian answer
1e person should act to try to produce the best
1ences from his or her actions.
of consequences, a utilitarian person attempts to
' all of the good things and bad things produced by an
ther they happen after the act has been performed
: its performance. Utilitarians believe that an action
'the happiness produced by it is greater than the
ness. They believe that if all individuals were to
is ethos, then the outcome would be the greatest
the greatest number of people.
•ss is sometimes referred to as utility and attempts
ure positive and negative happiness are often
ed in utils, which are measures of happiness, and
' utils, which are measures of unhappiness.
;umption of products can be measured in utils
assumed that the marginal utility, the extra utility
rom consuming an extra unit of a product, will
decrease as consumption increases. People will get less
happiness from eating a second ice cream than they did
from consuming the first one.
It is this theory that has been used in economics, in a simplistic
sense, to explain why the demand curve slopes downwards.
Consumers will only purchase more of a product if it is cheaper,
since they receive less extra utility as they increase their
consumption, and so will not pay as much for it.
1. Research the basic concept of utilitarianism.
2. You have $20 and are considering going out for the
evening or giving the money to the World Wildlife Fund .
Consider who would benefit from the two options and
try to give uti I values to the options in order to decide
the right course of action. (Itemize all those who would
benefit and lose from each option.]
3. Drink five glasses of mineral water and attempt to give
a marginal utility value to each glass. How does your
marginal utility change as you consume each extra
glass of water? How would this affect the amount that
you are prepared to pay for a glass?
4. Does utilitarianism assume rational consumer behaviour?
EXAMINATION QUESTIONS
Paper 1, part (a) questions
1. Distinguish between a shift of the demand curve for a product
and a movement along the product's demand curve.
[10marks]
2. With reference to two different determinants of demand,
explain why the demand for environmentally friendly
products might increase. [10 marks]
Paper 1, full question- HL Only
a) Describe two cognitive biases that influence consumers when
making consumption choices. [10 marks]
b) Using real-world examples, evaluate the effectiveness of
nudge theory in helping consumers to make better choices.
[15 marks]
Assessment advice: Paper 2 - Data response
This is the first of many data response part questions that you will be doing in this
course. On your second examination paper (Paper 2], you will be asked to choose
one of two, multi-part, data response questions. The data response questions will
all follow exactly the same pattern, which you will come to recognize. Each question
will have seven part questions, labelled [a] to (g) . The first part, [a], requires
simple knowledge and understanding. usually asking for definitions from the t~xt .
0
II