Choice architecture

A question and answer on a 15 marker competition question.

Traditional economic theory assumes that consumers make rational decisions that maximise economics welfare, but behavioural economists disagree.

Using examples to illustrate your answer, explain how anchoring and choice architecture can affect an individuals choices when deciding on how to spend or save their money {15}

Choice architecture is the consideration to the design or the layout to affect a consumers choice. Anchoring is when irrelevant data or information is used to influence a consumers choice.

Choice architecture is used quite a lot in everyday life. For example, a supermarket may use choice architecture in the way the store is organised out; so the daily essentials would be placed at the back of the store to therefore influence or encourage consumers to pick up extra items to the checkout, thus making the consumer spend more than what is needed. This therefore would affect an individuals choice to spend more than necessary. This is because individuals would generally use rules of thumb when making decisions. They would use system one which Is fast on the spot thinking instead of using logical methods of thinking which is system two.

Anchoring is used also by shops and markets by giving consumers irrelevant information that consumers may already know about. For example they may advertise a certain item at £9 but the price of the item was already £9, therefore consumers may see that as an offer/promotion and got to buy the product due to the individual using system one to make decisions.

This question got 12/15 marks and is a still a solid answer despite not getting full marks. It needed to focus on the saving side of the question in order to obtain higher marks

• Make sure that you use plenty of keywords like in the above essay. The more you use the more likely that your answer will be put in a higher level( meaning more marks!)
• Use lots of connectives to structure your work so it flows better.( Avoid words such as also as it can break up your chains of analysis)
• Also use plenty of your own economic knowledge ( examiners love this!!)
• And refer to the question constantly

I hope that this has been helpful and good luck in any upcoming exams :) !

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Market competition

A question and answer on a 15 marker competition question.

'The internet has benefitted small firms and has helped to make markets more competitive'.

Explain why this may be the case. {15}

The internet has allowed small firms to become more competitive in some markets due to the fact that the internet allows small firms to reach out to potential consumers globally. The internet can help small firms grow faster and enable them to setup online stores, thus exposing their brand image to the World. As a result, this will help these firms become more competitive in some markets such as the oligopoly. These firms can use non-price competition via the internet in order to become more competitive. The internet is a great tool to market a firm. In an oligopoly many firms rely on non-price competition due to interdependent strategies made by firms to not change pricing. As a result marketing through the internet will allow small firms in a oligopolistic as well as monopolistic competition market to be more competitive. For example in monopolistic competition the internet can benefit small firms enabling them to sell goods & services online and therefore reduces the cost of operating the business. If a firm was operating at Pm with costs at AC their supernormal profit would be the indicated area; whereas if they were to sell goods and services online then their average costs would be reduced because there is no need to have a shop as they are operating online. Therefore the average cost curve would shift downwards causing a change in the cost. This in turn would result in a greater supernormal profit. This would allow the firm to expand and grow its market share making the firm more competitive. On the other hand it may not make all markets more competitive in perfect competition because all the producers produce the same homogenous product and as a result the internet would no benefit its competitiveness as all producers have perfect information, thus not effecting a firms competitiveness.

This question got 13/15 marks and is a still a solid answer despite not getting full marks.

• Make sure that you use plenty of keywords like in the above essay. The more you use the more likely that your answer will be put in a higher level( meaning more marks!)
• Use lots of connectives to structure your work so it flows better.( Avoid words such as also as it can break up your chains of analysis)
• Also use plenty of your own economic knowledge ( examiners love this!!)
• And refer to the question constantly

I hope that this has been helpful and good luck in any upcoming exams :) !

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