1.2.10 Alternative views of consumer behaviour Quiz: Pearson Edexcel Economics A, Unit 1

The 20 questions

1. Which of these is an example of a reason consumers may not behave rationally, as described in alternative views of behaviour?

   • Calculating the utility of every purchase using complete information on all available alternatives.
   • Choosing the cheapest product in every case because price is the only factor the consumer considers.
   • Being influenced by the purchasing choices of other people, such as following a popular trend.
   • Buying goods only after a full comparison of their long-run costs and benefits over many years.

2. What is meant by habitual behaviour in consumption?

   • Recalculating the utility of every purchase carefully each time before making any choice in the market.
   • Repeating past purchases without recalculating the utility of each choice, even when alternatives are available.
   • Buying goods only when their price has fallen to the lowest level recorded over the previous year.
   • Buying goods only in bulk so that the cost per unit is minimised for the whole household budget.

3. Which of the following illustrates consumer weakness at computation?

   • A consumer who buys a product because it is the cheapest per unit among all the choices offered.
   • A consumer who finds it hard to compare unit prices of products with different sizes and pack formats in a supermarket.
   • A consumer who calculates the exact utility gained from each of several alternative purchases before buying.
   • A consumer who compares the prices of identical goods across shops using a spreadsheet at home.

4. A survey finds that many people choose a pension plan because their colleagues chose it, not after comparing its terms. Which alternative view does this support?

   • Profit maximisation, since employers select pension plans to maximise their own profits in the market.
   • The influence of other people's behaviour on the choices that individuals make.
   • Diminishing marginal utility, since each extra person choosing the plan adds less utility to the choice.
   • Perfect rationality, since people always compare pensions in detail before choosing one of them.

5. A household continues buying the same brand of cleaning product for years, even after a cheaper and equally effective alternative appears. Which view best explains this?

   • Habitual behaviour, since the household repeats past purchases without comparing options each time.
   • Price elasticity of supply, since the household responds to changes in the producer's output of the product.
   • Perfect rationality, since the household has calculated that the existing brand gives the highest utility.
   • Perfect competition, since the household has no alternative products to choose from in the market.

6. Which evaluation of alternative views of consumer behaviour is most accurate?

   • They are identical to rational choice theory, since habits and social influences are simply forms of utility.
   • They are irrelevant, since consumers always make decisions by calculating utility in every purchase they make.
   • They show that consumer behaviour is entirely irrational, so economists can no longer make any predictions about demand.
   • They add realism by explaining systematic departures from rational choice, though they are harder to model than utility maximisation.

7. A government runs an advertising campaign that uses social norms, such as telling people that most households already recycle. Which alternative view does this campaign rely on?

   • The influence of other people's behaviour, since people are more likely to act when they think others do the same.
   • Diminishing marginal utility, since each additional household recycling adds less utility to the campaign.
   • Profit maximisation, since the campaign aims to increase the profits of recycling firms in the market.
   • Perfect computation, since people are assumed to calculate the costs and benefits of recycling precisely.

8. Why might a consumer buy a product on impulse at the till, despite not planning to buy it?

   • The product is placed in a prominent position and the consumer does not calculate its value carefully before buying.
   • The consumer has calculated that the product gives more utility per pound than any other item in the shop.
   • The consumer is bound by a legal requirement to buy the product once it has been placed at the till.
   • The consumer has perfect information about all products and chooses the item that gives the highest profit.

9. Which conclusion about the influence of habit on demand is most defensible?

   • Habit makes demand rise whenever the price rises, since consumers buy more of a habitual product to avoid shortages.
   • Habit can make demand less responsive to price changes in the short run, though it may weaken over time as consumers reconsider.
   • Habit has no effect on demand, since consumers always make new decisions each time they buy any good.
   • Habit always makes demand perfectly elastic, so consumers switch products instantly whenever any price changes.

10. A firm designs a default option so that customers are automatically enrolled unless they opt out. Which alternative view explains why this increases take-up?

    • Perfect rationality, since customers always choose the best option after calculating the utility of each.
    • Inertia and habitual behaviour, since customers tend to stay with the default rather than make a new decision.
    • Profit maximisation, since the default option raises the profits of the firm by lowering prices for customers.
    • Diminishing marginal utility, since each extra customer enrolled adds less utility to the default option.

11. Which of these is most consistent with consumer weakness at computation in a decision about a loan?

    • A borrower chooses a loan with a higher total cost because the interest rate and fees are hard to compare accurately.
    • A borrower compares the total cost of several loans precisely and chooses the lowest one available in the market.
    • A borrower chooses the loan with the lowest monthly payment only because it is the one presented first to them.
    • A borrower never takes out a loan, since calculation weakness means borrowing is always irrational in every case.

12. Why might alternative views of consumer behaviour be relevant to a government deciding on a tax on sugary drinks?

    • They show that taxes on drinks always raise producer profits, so the government should not impose any tax.
    • They suggest habit and weak computation may limit how much consumers respond to the tax, so the impact may differ from the model.
    • They show that consumers always respond perfectly to the tax, so the government needs no information about behaviour.
    • They show that the tax has no effect on consumers, since consumers never consider the price of drinks at all.

13. Which of these describes the difference between rational decision making and alternative views of behaviour?

    • The rational model assumes consumers are influenced by habit, while alternative views assume they always maximise utility.
    • Rational decision making and alternative views both assume that consumers always compare every product on price alone.
    • Rational decision making assumes firms maximise sales, while alternative views assume that firms maximise profit in every market.
    • The rational model assumes utility maximisation, while alternative views allow for habit, social pressure and limited computing ability.

14. A consumer repeatedly chooses the same restaurant, even when cheaper and better-rated options are nearby. Which evaluation is most accurate?

    • This shows the restaurant has a monopoly, so consumers have no choice but to return to it in every case.
    • This shows the consumer is perfectly rational, since any choice repeated many times must maximise utility on every occasion.
    • This may reflect habit or familiarity, so it departs from strict utility maximisation, but it may still give high utility to the consumer.
    • This shows the consumer is entirely irrational, so the consumer's behaviour cannot be explained by any economic model.

15. Evaluate the claim that consumers always act in their own best interests.

    • This is an oversimplification, since social influence, habit and weak computation can lead consumers to choices that reduce their welfare.
    • This is irrelevant, since best interests are not part of economic analysis and so cannot be evaluated in any way.
    • This is correct, since consumers always know their own best interests and always act to maximise their own welfare.
    • This is wrong, since consumers never act in their own interests because they always follow the crowd in every decision.

16. Which of these illustrates the influence of other people's behaviour on consumer demand?

    • A product's supply rises when producers are offered a subsidy, so more of the product is sold to consumers.
    • A product becomes popular after many people are seen using it, so more people buy it at the same price.
    • A product's demand falls when its price rises, because consumers respond to the higher cost of buying it.
    • A product's demand is unaffected by any change in other people's behaviour, since consumers always decide alone.

17. A consumer buys a bundle of goods, but the bundle costs more than the consumer intended because of a hidden charge that was not noticed. Which view explains this best?

    • Perfect rationality, since the consumer has calculated the full cost and is happy to pay the extra charge.
    • Profit maximisation, since the consumer intends to maximise the profit of the seller by buying the bundle.
    • Consumer weakness at computation, since the consumer did not calculate the full cost of the bundle including the hidden charge.
    • Diminishing marginal utility, since each extra good in the bundle gives less satisfaction than the one before.

18. What is the best evaluation of using alternative views of consumer behaviour in economic models?

    • They should always replace rational models, since rational models have no predictive value for any type of consumer.
    • They should never be used, since any departure from rational choice means the model cannot be applied to real markets.
    • They are unnecessary, since consumer behaviour can always be predicted perfectly by assuming utility maximisation alone.
    • They can improve predictions where habit or social influence is strong, but effects vary between people, so models must be tested.

19. A consumer says she always buys the cheapest supermarket brand, even though she has no idea whether it is of equal quality. Which view of behaviour does this illustrate best?

    • Consumer weakness at computation or information, since she chooses on price alone without knowing how it compares with quality.
    • Diminishing marginal utility, since the cheapest brand gives the consumer the greatest extra utility per pound spent.
    • Profit maximisation, since the consumer is trying to maximise the profit of the supermarket by buying cheap goods.
    • Perfect rationality, since choosing the cheapest brand is always the best choice for the consumer in every case.

20. Which statement best describes how habit can affect the price elasticity of demand?

    • Habitual purchases have no effect on elasticity, since habit affects only supply and not demand in the market.
    • Habitual purchases tend to make demand less price elastic, since consumers keep buying the same product despite price changes.
    • Habitual purchases make demand unitary elastic, since consumers respond exactly in proportion to price changes each time.
    • Habitual purchases make demand perfectly elastic, since consumers switch products immediately after any price change.

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