Using indifference curve analysis compare and contrast the impact of a block-declining tariff with a quantity discount scheme on consumer behaviour.

ANSWER ANY THREE (3) OUT OF THE SIX (6) QUESTIONS.

WRITE YOUR ANSWERS ON A WORD DOCUMENT.

ALL QUESTIONS CARRY THE SAME WEIGHT.

QUESTION 1: Do NOT EXCEED 1,000 words 

Using indifference curve analysis compare and contrast the impact of a block-declining tariff with a quantity discount scheme on consumer behaviour. Refer to some real world examples in your answer.                                                                                                                       (100 marks)

QUESTION 2: DO NOT EXCEED 1,000 WORDS 

Using the two period rational choice model, explain why the ‘substitution effect’ on its own is not enough to predict the response of consumers to a fall in interest rates.                                                                                                                        (100 marks) 

QUESTION 3: Do not exceed 1,000 words 

Some research evidence has found that people display a fourfold pattern of risk preferences. To what extent can prospect theory explain this finding?                                                                                                                       (100 marks)

QUESTION 4: Do not exceed 1,000 words

There are three different ways of measuring the impact of a price increase of an inferior good on the welfare of consumers. Compare and contrast these three different measures using appropriate diagrams.                                                                                                                    (100 marks)

QUESTION 5: Do not exceed 1,000 words

Assume the government and opposition parties are debating the relative merits of some alternative policies to help support pensioners following an increase in energy prices.

• Opposition party ‘A’ wants to provide pensioners with a subsidy that halves the price of electricity per kilowatt-hour.
• Opposition party ‘B’ wants to provide pensioners with energy vouchers that they can only spend on heating bills.
• The government wants to provide pensioners with a lump sum unconditional cash payment i.e. they are free to spend this money on whatever goods they want.

Using the rational choice model, compare and contrast the impact of these three different policies.  Assume in your analysis that the costs to the taxpayer of each scheme are the same.                                                                                                                    (100 marks)

QUESTION 6: Do not exceed 1,000 words

Using isoquant analysis, derive a labour demand curve. Using at least two different examples, explain how the elasticity of substitution determines the shape of the labour demand curve.