Microeconomic principles of rational consumer choice
Your task for this assignment is as follows:
Use the microeconomic principles of rational consumer choice to analyse aspecial offer or deal that you have personally observed.
The task is broken down into sections as follows, the breakdown of each section’s contribution to the final mark is in brackets.
- Explain what the deal is that you are looking at, and show how it affects the budget constraint of the consumer. Please present and explain your diagram clearly. (30%)
- Analyse how a consumer with “standard” preferences will react to this deal. Draw a diagram using budget constraints and indifference curves to illustrate your point. Ensure that this diagram is explained fully. (30%)
- Analyse how a consumer with “non-standard” preferences would be affected by this deal. Clearly explain the nature of the preferences you are discussing and explain the shape of the resulting indifference curve. Show clearly in a diagram how a consumer with these preferences will behave when confronted with this deal. (30%)
In addition, the final 10% of markswill be awarded for originality. The more interesting or different the deal you examine is, the more marks you will get.
This is a more focussed version of the assignment that Robert Frank (the lead author of the textbook we are following) uses for his students. Some of the question addressed in the ‘economic naturalist’ section of the textbook are inspired by questions asked by students doing this assignment. Examples used by Frank include “Why do brides spend more on a wedding dress than grooms on their suit?” and “Why are child safety seats required in cars, but not for air travel?”
A video of Robert Frank discussing issues surrounding this sort of assignment (and the teaching of economics more generally) can be found here:
https://www.youtube.com/watch?v=QalNVxeIKEE
The point of this assignment is for you to use what we are learning on the course to analyse what we experience around us. I am hoping for some original and interesting assignments. Most things we buy are subject to some sort of special offer at one time or another. We have seen in the lectures how this can distort the consumer’s budget constraint and therefore affect their behaviour, several issues emerge from this.
In the assignment you should carefully show how the special offer you have chosen will affect consumer behaviour. You may focus on an individual consumer facing one deal, or you may want to compare multiple consumers with different tastes, or look at how a consumer will react when choosing between two different special offers. Does it matter if the goods on offer are normal, inferior, substitutes, or complements with other goods?
This assignment addresses the following learning objectives of this module:
– Be able to apply microeconomic models to economic problems.
– Be able to critically discuss the fundamental microeconomic models.
Some examples (to get you thinking):
- The supermarket Morrissons introduced a new loyalty card in 2014that gives the customer points when they buy items that are cheaper in other supermarkets. How does this affect the behaviour of supermarket shoppers? Why offer this deal, and not just reduce the prices of your goods?
- At some tourist attractions, such as museums and safari parks, customers are offered a free (or discounted) return visit when they make their initial purchase. What is the benefit of such a scheme to those offering it?
