Alternative explanations of behaviour

Question 1

according to neoclassical economics, what does it assume consumers are? what do they aim to maximise?

Answer 1

assumes they are rations, and aim to maximise own utility or economic welfare

Question 2

name some other key assumptions made in neoclassical economics

Answer 2

• consumers will always prefer to buy the good with the lowest price, will prefer a bundle of goods containing additional beneficial items to a bundle of goods without that item.

Question 3

name some factors that influence consumer ability to act rationally

Answer 3

• preference (likes & dislikes)
• incomes (wealth, lifestyle, standard of living/quality of life, background/upbringing)
• environment
• biology
• context
• peer pressure!

Question 4

what is the ‘assumption’ economists make based on other peoples behaviour?

Answer 4

we behave without regard to others, in our best interest.

Question 5

what is the ‘reality’ based on other peoples behaviour?

Answer 5

choices are often not free or independent, we are influenced by other factors.

Question 6

name the other factors were influenced by

Answer 6

• social norms (desire to fit in)
• status quo bias, tend to select the previously chosen option
• past price
• delayed payment (e.g. nothing to pay for 6 months, interest free credit type of thing)
• pricing is psychological e.g. 99p compared to £1

Question 7

give some features of importance of habitual behaviour

Answer 7

• habits may act as short cuts in decision making (where should we eat?)
• saves time and effort
• good decisions aren’t going to be made all of the time
• less effort is required
• less info. is required

Question 8

describe in points, how firms exploit habits

Answer 8

• supermarkets place goods at eye level that provide them with the highest profit (place cheaper goods on higher shelves and lower shelves contain more expensive goods)
• profit does not necessarily mean the most expensive product

Question 9

name some other ways firms exploit habits

Answer 9

• habits can be powerful
• addictions are habits
• mcdonalds runs a 24 hour restaurant in Canterbury with 2 full time security guards

Question 10

what is computational weakness?

Answer 10

when consumers find it difficult to calculate the probability of something happening when they make purchasing decisions

Question 11

describe ‘acting rationally’

Answer 11

using objective (individual) thinking, logic, scientific method…

Question 12

describe ‘acting irrationally’

Answer 12

acting according to how you feel in the moment without consciously understanding what you’re doing (the consequences).