IB DP Economics: Critique of maximising behaviour (HL) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – the IB holds copyright in its own papers. Use these alongside the official past papers available through your school or the IB store.

This set follows the IB Diploma Programme Economics guide (first assessment 2022, published February 2020), the course examined from the 2022 session onwards. It covers sub-topic 2.4, Critique of the maximizing behaviour of consumers and producers, which is HL only, so every question is HL. All places, firms and figures are invented. Read the study guide and revision notes first, and see the course hub.

Questions

1. (HL only) Define bounded rationality. [2]

2. (HL only) Distinguish between bounded self-control and bounded selfishness. [3]

3. (HL only) An online store in Veldora advertises a course as “Was 90, now 54”. The course sold at 60 for the past year. Calculate the headline discount and the real saving, both as percentages, and name the bias involved. [3]

4. (HL only) A consumer values successive coffees in a day at 14, 11, 8, 5 and 2 crowns. The price is 6. (a) Calculate how many coffees a utility-maximising consumer buys and her net benefit. [3] (b) State one assumption of rational choice used in (a). [1]

5. (HL only) After a widely reported flood in the town of Harnby, residents believe there is a 3% chance of flooding each year. The true chance is 1 in 10,000. A flood would cost a household 40,000, and cover costs 90 a year. (a) Calculate the expected loss using each probability. [2] (b) Explain why many households buy cover. [2]

6. (HL only) In an invented game a proposer splits a pot of 80. The responder accepts, or rejects so both receive nothing. Responders reject offers below 20. Offering 16 is rejected 90% of the time; offering 30 is accepted 90% of the time. (a) Calculate the proposer’s expected payoff from each offer. [2] (b) State which offer is better for the proposer. [1] (c) Explain how the result relates to bounded selfishness. [2]

7. (HL only) Over 18 months, broadband plan A costs 8 a month for 3 months, then 30 a month. Plan B costs 20 a month throughout. (a) Calculate the total cost of each plan and the difference. [3] (b) Explain two reasons why a consumer might still choose A. [2]

8. (HL only) A utility supplier has 8,000 customers. Under opt-in, 15% join a green tariff. Under opt-out, 70% remain on it. The tariff costs each member 4 more a month. (a) Calculate the extra number of members under opt-out. [2] (b) Calculate the extra amount spent by members in a year. [2] (c) Distinguish a default choice from a mandated choice. [2]

9. (HL only) A firm faces P = 90 - 3Q with TC = 150 + 30Q. (a) Calculate the profit at Q = 10 and at Q = 15. [2] (b) The owners are content with a profit of at least 100. State the range of whole-number outputs that satisfies them, and name this objective. [3] (c) State which of Q = 10 and Q = 15 gives higher revenue. [1]

10. (HL only) Evaluate the extent to which evidence on biases and bounded behaviour undermines the assumption that consumers maximise utility. [10]

11. (HL only) The government of Veldora wants to reduce sugary drink consumption. Options are a default smaller cup size at cafes (a nudge), a tax, or a ban. Recommend one option, with reasons. [10]

Answers

1. People have limited information, time and thinking capacity [1], so they cannot find the best option and settle for a satisfactory one, often using rules of thumb [1]. [2] Examiner insight: The credit is for the idea of limits on deciding; calling people “irrational” does not capture it.

2. Bounded self-control: a person knows the better long-run choice but fails to act on it because the present is too tempting [1], for example under-saving [1]. Bounded selfishness: a person cares about fairness or others’ welfare so does not maximise own gain only [1]. [3] Examiner insight: A “distinguish” answer must make the difference clear; two separate definitions with no contrast can leave the contrast implied rather than stated.

3. Headline discount = (90 - 54) / 90 = 40% [1]. Real saving = (60 - 54) / 60 = 10% [1]. Anchoring: the old price of 90 is the reference point [1]. [3] Examiner insight: In a calculation, use the base the question implies; dividing by the wrong price is a common route to a wrong figure, and showing the working keeps the method credit.

4. (a) Buy while value is at least 6: 14, 11 and 8 qualify; 5 does not [1], so 3 coffees [1]. Net benefit = (14 - 6) + (11 - 6) + (8 - 6) = 8 + 5 + 2 = 15 [1]. (b) The consumer knows her valuations and the price (perfect information), or she maximises utility [1]. [4] Examiner insight: Part (b) asks for an assumption, so name one of the model’s assumptions explicitly rather than describing the consumer’s choice again.

5. (a) Perceived: 0.03 x 40,000 = 1,200 [1]. True: 0.0001 x 40,000 = 4 [1]. (b) Availability: the vivid recent flood comes easily to mind [1], so households overestimate the chance and the perceived loss of 1,200 exceeds the cover price of 90, while the true loss of 4 does not [1]. [4] Examiner insight: A strong explanation links the named bias to the figures in the question, not only to a definition.

6. (a) Offer 16: 80 - 16 = 64 kept, so 0.1 x 64 = 6.4 [1]. Offer 30: 50 kept, so 0.9 x 50 = 45 [1]. (b) The offer of 30 [1]. (c) A purely selfish responder would accept 16 [1], but these responders reject low offers to punish unfairness at a cost to themselves, so a payoff-maximising proposer must allow for fairness [1]. [5] Examiner insight: The idea to reach is that concern for fairness changes the maximising choice; saying only that people are “nice” stops short.

7. (a) A = 3 x 8 + 15 x 30 = 24 + 450 = 474 [1]. B = 18 x 20 = 360 [1]. Difference = 114 [1]. (b) Any two: the low starting price acts as an anchor [1]; the consumer ignores or cannot judge the later price (imperfect information or limited attention) [1]. [5] Examiner insight: Two reasons need two different points; repeating the same idea in new words usually earns one mark at most.

8. (a) Opt-in: 0.15 x 8,000 = 1,200; opt-out: 0.70 x 8,000 = 5,600 [1]. Extra = 4,400 [1]. (b) 4,400 x 4 x 12 [1] = 211,200 [1]. (c) A default applies unless the person acts, and all options remain open [1]. A mandated choice requires the person to make an active choice before going on, with no pre-set option [1]. [6] Examiner insight: Show the multiplication by 12 months; a monthly figure given as the final answer may not answer the question asked.

9. (a) Q = 10: P = 60, TR = 600, TC = 450, profit 150 [1]. Q = 15: P = 45, TR = 675, TC = 600, profit 75 [1]. (b) Profit = -3Q² + 60Q - 150 [1]. Profit of at least 100 gives Q between about 5.92 and 14.08, so whole outputs 6 to 14 [1]. The objective is satisficing [1]. (c) Q = 15 (675 against 600) [1]. [6] Examiner insight: Test the end values of the range by substitution (Q = 6 gives 102, Q = 5 gives 75) so the whole-number limits are secure.

10. Indicative points, one mark each up to 10: (1) define the maximising model: rational, utility-maximising, informed [1]; (2) rules of thumb and anchoring show inconsistent choice, with a short example [1]; (3) availability distorts risk [1]; (4) bounded rationality limits optimisation [1]; (5) bounded self-control shows plans not followed [1]; (6) bounded selfishness shows other aims than own gain [1]; (7) imperfect information blocks full comparison [1]; (8) against: the model still predicts average responses to price in many markets and errors may be corrected by repetition and feedback [1]; (9) behavioural findings are context specific and no single theory replaces the model [1]; (10) a justified judgement, such as that the model is a useful starting point that needs qualification where choices are rare, complex or emotive [1]. [10] Examiner insight: Advice for AO3 questions: balance both sides, give a short example for each point, and end with a judgement that states its condition.

11. Indicative points, one mark each: (1) the nudge keeps all options open and is cheap [1]; (2) it uses the default and inertia, so people drift to the smaller size [1]; (3) limit: effect may fade or be bypassed by refilling [1]; (4) the tax raises price, so a rational buyer cuts quantity [1]; (5) limit: tax is regressive or politically hard, and an inelastic demand reduces its effect [1]; (6) the ban gives certainty of the outcome [1]; (7) limit: removes choice, enforcement cost, objections from consumers [1]; (8) compare the options on effectiveness, cost and freedom [1]; (9) a clear recommendation, for example the nudge first, with the tax as backup if the effect is small [1]; (10) a reason that references the evidence in the question or stated conditions, and a risk [1]. [10] Examiner insight: “Recommend” needs one clear choice supported by reasons and evidence; a neutral list of three options without a choice cannot satisfy the command term.

Where marks are usually lost

• Defining a bias but not linking it to the figures or context in the question.
• Confusing bounded rationality with bounded self-control.
• Calling a tax, ban or legal requirement a nudge.
• Dropping the final step in a calculation, such as the annual multiplier.
• Using the wrong base for a percentage.
• Giving one-sided evaluation when the command term asks for a balanced judgement.
• Stating a recommendation without comparing it against the alternatives.
• Treating satisficing as a lack of effort rather than a target-based aim.

Next steps

• Review the revision notes and the study guide.
• Open the IB DP Economics hub and tick off the printable checklist.
• Try the free 10-minute diagnostics to find weak areas.
• Book a free trial class for help with written evaluation.

Official syllabus

IB Diploma Programme Economics guide, first assessment 2022, published February 2020 by the International Baccalaureate Organization. Sub-topic 2.4 (HL only), Unit 2 Microeconomics.