2.4 Critique of the maximising behaviour of consumers and producers questions for IB Economics

Explain how a mixed economy uses both the market and government intervention to answer the basic economic questions.

Using real-world examples, discuss the view that consumer nudges are a more effective form of government intervention than regulation.

Define the term nudge indicated in bold in the text (Text A, paragraph 1).

Using information from Text A, paragraph 3, calculate the percentage change in average monthly electricity use for households that received the comparison bills.

Using information from Text A, paragraph 3, calculate the percentage change in average monthly electricity use for the control group. Give your answer to two decimal places.

Using your answers to (b)(i) and (b)(ii), state the fall in electricity use, in percentage points, that may be attributed to the comparison bills.

Explain two reasons, based on behavioural economics, why the comparison bills may have reduced electricity use even though the price of electricity did not change (Text A, paragraphs 1–3).

Using Table 1, calculate the percentage change in gross gambling yield between 2019 and 2024.

Using Table 1, calculate the average gross gambling yield per active account in 2024.

Using Table 1, calculate the gross gambling yield earned in 2024 from the 5 % of accounts with the largest losses.

Define the term bounded self-control.

Online gambling operators in Merathia pay a remote gaming duty of 21 % of their gross gambling yield.

Using Table 1, calculate the change in the government's revenue from remote gaming duty between 2019 and 2024.

Gambling apps in Merathia send customers “free bet” offers after they stop playing, show near-misses on casino games, and advertise odds as “win MRT 50 for every MRT 5 staked” rather than stating the probability of winning (8 %). Television advertisements feature ordinary people celebrating large wins.

Using the information provided, explain two biases that gambling apps may exploit to increase the amount that consumers gamble.

Using an externalities diagram and the information provided, explain why there may be overconsumption of online gambling in Merathia.

In a trial, one operator gave 10 000 new customers a monthly deposit limit of MRT 300, which they could change at any time; 7 900 of them kept this limit. A comparison group of new customers was required to type in a deposit limit of their own before they could open an account. Average monthly deposits in the comparison group were 22 % higher.

Identify the form of choice architecture used for the comparison group.

Outline one reason why a default deposit limit may be less effective in reducing the losses of the 5 % of accounts with the largest losses.

The government of Merathia is considering the following policies:

• raising remote gaming duty from 21 % to 30 % of GGY; operators say they would cut sponsorship of sport and that some customers would move to unlicensed offshore websites that pay no duty;

• requiring every operator to set a default deposit limit of MRT 300 a month for all accounts, which customers could raise after a 72-hour wait;

• legally binding affordability checks on customers who lose more than MRT 2 000 a month; civil liberties groups object to checks on personal finances;

• banning gambling advertisements on television and sports shirts; sports clubs earn about MRT 60 million a year from gambling sponsors;

• a national self-exclusion register that blocks a person from every licensed app at once;

• funding treatment and information campaigns from duty revenue.

Using the information provided and your knowledge of economics, recommend a policy the government of Merathia could introduce to reduce the harm caused by online gambling.

Explain how insights from psychology have challenged the assumption that consumers make rational choices in order to maximize their utility.

Using real-world examples, evaluate the view that consumer nudges are more effective than indirect taxes in reducing the consumption of demerit goods.

Using Table 1, calculate government spending on health as a percentage of GDP in 2023.

Using Table 1, calculate Saldova's government debt as a percentage of GDP in 2023.

Using Table 1, calculate the number of people aged 65 and over who were not vaccinated against flu in 2023.

Using an externalities diagram and the information provided, explain why flu vaccination among people aged 65 and over is underconsumed in Saldova.

Saldova normally sends people aged 65 and over a letter asking them to telephone their clinic to book a vaccination. In a trial, 20 000 people instead received a letter giving them an appointment with a date and time already booked, which they could change or cancel. The vaccination rate was 55 % among those who received the pre-booked appointment and 42 % among 20 000 people who received the standard letter.

Identify the form of choice architecture used in the pre-booked appointment letter.

Using the information in part (a)(v), calculate the additional number of people vaccinated as a result of sending the pre-booked appointment letter to 20 000 people.

Outline why the pre-booked appointment letter is an example of a nudge.

Explain two reasons, other than cost, why many people aged 65 and over in Saldova do not get vaccinated even though the vaccine is free.

Each flu-related hospital admission of a person aged 65 and over costs the health service SDL 9 500. Health economists estimate that every 100 additional vaccinations of people in this age group prevent 2 hospital admissions. Each vaccination costs the health service SDL 30.

Using your answer to part (a)(vi), calculate the net saving to the health service from the additional vaccinations in the trial. Ignore the cost of sending the letters.

The following options to raise flu vaccination among people aged 65 and over are being considered:

• sending pre-booked appointment letters to all 3.2 million people aged 65 and over, at a cost of SDL 1.20 per letter;

• a payment of SDL 20 to each person who is vaccinated; critics argue that it would mostly reward people who would have been vaccinated anyway;

• allowing pharmacies to give vaccinations, which would require training and payments to pharmacists;

• a public information campaign on television and radio costing SDL 6 million;

• making vaccination compulsory for residents of care homes, which some groups argue would breach individual rights.

The government has said that any new spending must be “affordable given the budget deficit”.

Using the information provided and your knowledge of economics, recommend a policy the government of Saldova could introduce to increase the flu vaccination rate among people aged 65 and over.