QUESTION 1: WORD LIMIT – DO NOT EXCEED 1,200 WORDS
Making reference to (a) the lottery choice experiments you played in the module and (b) evidence from the research literature, discuss the major differences between expected utility theory and prospect theory.
(100 marks in total)
QUESTION 2: WORD LIMIT – DO NOT EXCEED 1,200 WORDS
‘If asymmetric information exists, then the market for high quality versions of a product must collapse’. Discuss this assertion using demand/supply analysis and refer to relevant empirical evidence in your answer.
(100 marks in total)
QUESTION 3: WORD LIMIT – DO NOT EXCEED 1,200 WORDS
To what extent are the predictions of the exponential discounting utility model consistent with the evidence in the research literature?
(100 mark in total)
QUESTION 4: WORD LIMIT – DO NOT EXCEED 1,200 WORDS
A firm selling good X, initially sets a price of £8 per unit. As a policy to increases sales, it introduces the following block declining tariff.
– If consumers purchase more than 9 units of good X the price of those additional units (i.e. greater than 9) falls from £8 to £4 per unit. As this is a block declining tariff, the new lower price only applies to the additional units.
The price on the first 9 units purchased remains the same at £8.
Using standard consumer choice theory analyse the impact of this block declining tariff on a range of consumers with different preferences. Assume they each have a budget of £160 to spend on X and all other goods.
Assume that the initial price of X now increases from £8 to £10 per unit while the lower price on the additional units remains the same (£4 per unit). Illustrate and explain the impact of this price change on the consumers in your previous diagram.
(80 marks)
Using the results from research on the secondary ticketing market, discuss some of the limitations of using standard consumer choice theory to analyse the impact of this non-linear pricing schemes
(20 marks)
(100 marks in total)
QUESTION 5: WORD LIMIT – DO NOT EXCEED 1,200 WORDS
‘A consumer will always be worse off if a government imposes a quantity tax on a product they consume, even if the full amount of the tax is rebated as a lump sum cash transfer’. Using standard economic consumer choice theory, discuss this statement and examine the importance of Giffen behaviour in your answer.
(100 marks in total)
