Practise IB Economics HL 2.4.1 by defining rational consumer choice, applying utility assumptions and evaluating behavioural limitations.
Traffic congestion is a major problem in India. It is estimated that congestion in four major cities costs the Indian economy approximately US $22 billion annually. According to a 2019 survey, India has four of the eight most congested cities in the world. People in these cities pay higher fuel costs, inhale toxic gases, and waste up to 11 days a year stuck in traffic.
In New Delhi, India's capital city, 45 % of workers use cars to travel to work, while 89 % of workers indicate plans to purchase a car in the next five years. However, 80 % of car users say they would change their plans if ridesharing businesses such as Uber could meet their requirements on price, timeliness and availability.
Define the term rational consumer choice.
Level
Marks
0
The work does not meet a standard described by the descriptors below.
1
Vague definition
For the idea that consumers make sensible decisions.
2
Accurate definition
For a clear understanding that consumers (are assumed to) make decisions (at the margin) which maximize their utility.
OR
For an answer that explains that rational consumer choice requires that preferences are complete (consumers able to rank all bundles/baskets of goods) / they are transitive (consistent) / more is preferred to less.
With reference to the use of cars in India, explain how one limitation of the assumptions of rational consumer choice might result in the overuse of cars in New Delhi.
-use of cars in New Delhi.
Level
Marks
0
The work does not meet a standard described by the descriptors below.
1
The written response is limited.
1-2
For an explanation of one limitation of rational consumer choice (eg consumers may often make choices without the time or ability to gather all the relevant information (bounded rationality))
OR an explanation of how one limitation of rational consumer choice might lead to the over-consumption of cars in New Delhi (eg drivers in New Delhi are not able to evaluate all the alternatives to driving, such as the use of "ride share services, and hence make "irrational" decisions).
2
The written response is accurate.
3-4
For an explanation of one limitation of rational consumer choice (eg consumers may often make choices without the time or ability to gather all the relevant information (bounded rationality))
AND an explanation of how one limitation of rational consumer choice might lead to the over-consumption of cars in New Delhi (eg drivers in New Delhi are not able to evaluate all the alternatives to driving, such as the use of "ride share services", and hence make "irrational" decisions).
NB A range of valid responses is available for this question. Candidates should be fully rewarded if they provide a well-explained answer which applies other limitations of the assumptions of rational consumer choice such as:
- biases: availability, anchoring, social conformity, inertia
- bounded self-control
- any valid response.