4.1.2.4 Behavioural economics and economic policy Quiz: AQA Economics, Unit 1

The 20 questions

1. Choice architecture refers to:

   • the legal rules that determine which goods can be sold in the market and the penalties that apply to any retailer that breaks them.
   • the process by which firms set their production levels in response to demand forecasts and changes in the costs of their inputs.
   • the way options are presented to people, which can influence the choices they make.
   • the design of the physical structure of shops only, such as aisle shape, entrance width and store lighting.

2. A nudge in economic policy is best described as:

   • a change in how choices are presented that encourages a behaviour without removing any options.
   • a compulsory law that must be obeyed by everyone, with penalties for anyone who fails to comply with its requirements in full.
   • a tax that is designed to reduce demand for a good by raising its price in the market and collecting revenue for government use.
   • a subsidy paid to firms to lower their production costs, so that they can supply more output at each price in the market.

3. A default choice is an option that:

   • is pre-selected for people unless they actively choose otherwise.
   • is only available after a long waiting period, during which the consumer must fill in forms and provide documents to the provider.
   • is the most expensive option in a menu, placed at the top of the list so that consumers are more likely to notice it first.
   • is banned by government, so that it can no longer be bought, sold or offered by any firm in the market in any form at all.

4. A government introduces automatic enrolment into a pension scheme, with an option to opt out. Which policy tool is this?

   • A default choice.
   • A mandated choice.
   • A restricted choice.
   • A tax on savings.

5. Which of the following is an example of a restricted choice?

   • A consumer can choose from a range of ten brands of toothpaste, each with its own price, packaging and list of ingredients on the shelf.
   • A firm offers a free trial period so that customers can test a product before deciding whether to pay for it in full.
   • A government bans the sale of certain products to protect consumers.
   • A shop displays two products side by side for comparison, so that shoppers can see the difference in price and quality between them easily.

6. Mandated choice requires that:

   • people must always choose the cheapest option available, regardless of quality, brand or the extra features of the product on sale.
   • people are prohibited from choosing any option, so that the decision is removed from them entirely by a regulation or a ban.
   • people must choose an option from a set, rather than being given a default.
   • people choose randomly without any information, so that outcomes depend entirely on chance rather than on preferences or prices.

7. How does framing affect economic decisions?

   • Framing has no effect because choices depend only on prices, income and the quantity of goods that are available to buy in the market.
   • The way information is presented, such as a gain or a loss, can change the choices people make.
   • Framing only affects how goods are packaged, so that the box and wrapping of a product are the only things that change under framing.
   • Framing only matters for firms and never for consumers, because households make their choices purely on the basis of their own income.

8. A supermarket places healthy food at eye level and sweets at the checkout. Which behavioural concept is most relevant?

   • Income elasticity of demand, because shoppers with higher incomes buy more of the healthy food placed at eye level.
   • Opportunity cost of land, because the space used for displays has an alternative use as a sales area or a storage room for the shop.
   • Economies of scale, because the supermarket's larger size lowers the average cost of each product it sells on its shelves in the store.
   • Choice architecture, through the layout of options.

9. Why might governments use nudges rather than taxes or bans to change behaviour?

   • Because nudges are always more costly than taxes, so governments use them only when they have no budget left for other policies at all.
   • Because nudges eliminate all market failure, so that once a nudge has been introduced no further intervention is ever needed in the market.
   • Because nudges reduce the need for information, since people who are nudged do not need to know anything about the products they choose.
   • Because nudges can change behaviour while keeping options available and often at lower cost.

10. A pension provider describes a scheme as protecting against a loss of income rather than as offering a gain. Which concept is being used?

    • Diminishing returns.
    • Price discrimination.
    • Economies of scope.
    • Framing.

11. Which of the following best explains why a default choice can have a large effect on behaviour?

    • Because defaults remove all alternatives from the market, so that a consumer has no option other than the pre-selected choice.
    • Because people often stick with the default, due to inertia, effort or assumptions about what is recommended.
    • Because defaults are always the cheapest option, which means that people choose them to save money on every purchase they make.
    • Because defaults are always compulsory, so that every person in the country must accept the pre-selected option without any exception.

12. Which of the following is a potential criticism of nudges as a policy tool?

    • Their effects may be modest or vary across people, and they raise questions about whether the state should steer choices.
    • They make consumers less able to compare prices, because nudges hide the information that shoppers need to make the best purchase.
    • They guarantee that all market failures are removed, so that no other policy tool is needed once a nudge has been introduced in the market.
    • They always reduce the cost of government intervention to zero, so a nudge is always the cheapest policy available.

13. A council changes its waste collection to make recycling the default option, rather than a choice people must opt in to. Which statement is correct?

    • It is a restricted choice that bans general waste bins, which means that households may no longer place rubbish in any bin at all.
    • It is an income tax paid by households on their waste, which is collected by the council as revenue to fund its recycling services.
    • It is a default choice, which may increase recycling without removing the option to opt out.
    • It is a mandated choice because recycling is the only option available, so that residents have no choice about how they dispose of waste.

14. Which of the following best distinguishes a nudge from a restricted choice?

    • There is no difference between a nudge and a restricted choice, since both describe the same policy tool used by governments in the market.
    • A nudge removes options, whereas a restricted choice keeps all options available for consumers to select from in the market.
    • A nudge is always compulsory, whereas a restricted choice is voluntary, so that people can choose freely when restrictions are in place.
    • A nudge keeps all options available but changes the way they are presented, whereas a restricted choice removes some options.

15. Which of the following best explains why insights from behavioural economics can help governments?

    • Because behavioural insights show people never respond to incentives, so that governments can stop using taxes and subsidies entirely.
    • Because behavioural insights remove all need for taxes, since people can be persuaded to pay for services without revenue.
    • Because understanding biases and framing allows policies that help people reach choices they value, at relatively low cost.
    • Because behavioural insights make markets perfectly competitive, so that all firms set prices at the lowest possible level for consumers.

16. A firm changes its online checkout so that a premium insurance add-on is pre-ticked. Which policy or business tool is most clearly used, and what is the main risk?

    • An income tax, with the risk that output falls, because the insurance add-on is paid to the government as a levy on each purchase.
    • A mandated choice, with the risk that customers cannot choose, since the checkout forces every buyer to accept the add-on in the basket.
    • A default, with the risk that customers buy insurance they do not need or want.
    • A restricted choice, with the risk that prices become too low, because the firm removes the option of buying the product without insurance.

17. Evaluate the claim that choice architecture can always be used to improve welfare. Which response is most appropriate?

    • The claim is true only in planned economies, where the state controls the choices available and can design them as it wishes.
    • The claim is true because choice architecture always works, so every design improves the welfare of all consumers.
    • The claim is false because choice architecture has no effect on behaviour, since people always choose the same whatever the layout.
    • The claim is overstated, because the welfare effects depend on whether the chosen design serves people's own goals and is transparent.

18. Which of the following is the best example of mandated choice in practice?

    • Banning the sale of organs entirely, so that no person can give or receive an organ through any form of legal exchange in the country.
    • Offering only one organ donation option to people, so that the choice of whether to register as a donor is decided for them by the scheme.
    • Automatically registering all adults as organ donors without any question, so people must opt out to be removed from the list.
    • Requiring people to actively select whether they wish to be an organ donor when renewing a licence.

19. Which of the following is an example of a nudge that uses framing?

    • A food label that states '90% fat free' rather than '10% fat', which presents the same information as a positive gain for the buyer.
    • An automatic enrolment scheme that places employees in a pension unless they actively opt out of saving for retirement.
    • A law that bans the sale of sugary drinks to children under 16, so that the choice is removed from young consumers entirely from the start.
    • A tax on sugary drinks that raises their price by 20%, so that consumers buy fewer of them through the price mechanism in shops.

20. A government wants people to save more for retirement. Which policy best uses behavioural insights without removing any options?

    • Raising the basic rate of income tax so that households have less disposable income available for spending in each year.
    • Enrolling workers automatically in a pension scheme, while leaving them free to opt out at any time.
    • Banning all spending on luxury goods so that households have no option but to save their income each month.
    • Making it compulsory for all workers to save 15% of their pay, with fines for anyone who refuses to comply with the rule in full.

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