A LevelEconomicsAQAExam QuestionsIndividuals, Firms, Markets & Market Failure2. Individual Economic Decision Making

Individual Economic Decision Making (AQA A Level Economics): Exam Questions

Exam code: 7136

27 mins13 questions

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2. Individual Economic Decision Making

1
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According to the hypothesis of diminishing marginal utility, when marginal utility is zero

  • average utility is negative

  • the good is a demerit good.

  • total utility from consuming the good is maximised.

  • Total utility will increase by consuming more of the good.

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2
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The behaviour of a consumer buying a 75-inch large screen TV is biased due to bounded rationality and the anchoring effect. This implies that the choice of which TV to buy is based on the price of

  • all available 75-inch TVs, given sufficient time to obtain the information.

  • the cheapest available 75-inch TV, in order to maximise utility.

  • the first 75-inch TV seen and imperfect information about available alternatives.

  • the most expensive 75-inch TV, believing that this indicates the best quality available.

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3
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The hypothesis of diminishing marginal utility

  • assumes that at least one factor of production is fixed in the short run.

  • can be used to help explain why a demand curve is downward sloping.

  • explains why firms try to maximise profit.

  • states that total utility must fall as consumption increases.

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4
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Which one of the following is most likely to be associated with behavioural economic theory?

  • All consumer behaviour is based on rational utility-maximising decisions.

  • An individual’s economic decisions may be biased.

  • Price changes cannot explain how competitive markets achieve equilibrium.

  • The behaviour of firms is based on their desire to maximise profit.

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5
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A person eats six biscuits a day to maximise their total utility from the consumption of biscuits.

The price of biscuits increases by 50%, leading to a change in the individual’s daily consumption of biscuits.

Which one of the following combinations, A, B, C or D, shows the most likely changes in the individual’s total utility and marginal utility? 

 

Total utility derived from their daily consumption of biscuits

Marginal utility derived from the last biscuit consumed each day

A

Decrease

Decrease

B

Increase

Decrease

C

Decrease

Increase

D

Increase

Increase

    Choose your answer

    6
    Sme Calculator    1 mark

    The law of diminishing marginal utility states that

    • as more of a product is consumed, the extra satisfaction will decline.

    • as more of all factors are employed, the additional output produced will fall.

    • as more variable factors are added to a fixed factor, the additional output produced will decline.

    • the total satisfaction from consuming a product will be maximised when marginal utility starts to fall.

    Choose your answer

    71 mark

    A person is considering buying a used motorbike from a dealer on the internet. The motorbike is described as being in perfect condition and is being offered at a correspondingly high price.

    In this situation, asymmetric information is most likely to lead the person to

    • buy the motorbike because they believe the price is justified by its condition.

    • know more about the motorbike’s market value than the dealer.

    • maximise their utility by buying a cheaper used motorbike from a different dealer.

    • not buy the motorbike because they do not know as much about the motorbike as the dealer.

    Choose your answer

    81 mark

    A feature of the UK government’s workplace pension scheme is that employers are required to enrol their employees in the scheme unless the employees make a conscious decision to opt out and join another scheme.

    An individual choosing to remain in their workplace pension scheme is an example of a person

    • accepting the default choice.

    • acting irrationally by ignoring an economic incentive.

    • being anchored by a previous financial decision.

    • using a rule of thumb to make the choice.

    Choose your answer

    91 mark

    Which one of the following is a nudge technique that could be used to encourage healthy eating?

    • Banning supermarkets from selling high-calorie energy drinks

    • Increasing taxes on high-fat products to raise their price

    • Moving products with a high sugar content away from supermarket checkouts

    • Subsidising fruit and vegetables to reduce their prices

    Choose your answer

    101 mark

    Following flooding, described by the Environment Agency as a ‘once in a century event’, there is a sharp increase in the number of residents of a large town who buy additional flood insurance.

    Which one of these combinations of biases in decision making are the residents most likely to have experienced?

    • Anchoring and framing bias

    • Availability bias and social norms

    • Rules of thumb and anchoring

    • Social norms and rules of thumb

    Choose your answer

    111 mark

    Figure 6 shows the marginal utility that a consumer gains from eating apples

    Line graph showing decreasing marginal utility as the number of apples per day increases from 1 to 7, labelled Figure 6.

    When 7 apples per day are consumed

    • average utility is maximised

    • marginal utility is maximised

    • opportunity cost is minimised.

    • total utility is maximised.

    Choose your answer

    121 mark

    Figure 2 shows the total utility that a consumer derives from their daily consumption of bananas.

    Line graph titled "Figure 2" showing utility versus quantity of bananas, peaking at 3, then declining. Labels: "Utility" and "Total utility".

    Based on the information in Figure 2, which one of the following statements is correct?

    • A rational consumer will choose to consume 3 bananas each day

    • Diminishing marginal utility sets in with the consumption of the 4th banana

    • Marginal utility is maximised with the consumption of the 3rd banana

    • Marginal utility from consuming the 3rd banana is less than the 2nd

    Choose your answer