Answer ONE of the following questions, fully addressing all parts. The word count guideline is 1750 words.
1. How do rational individuals decide what to buy?
a) Explain how microeconomics provides answers to this, outlining key insights from microeconomics theory on Rational Consumer Choice.
b) Why might optimal choices vary between individuals?
c) Why might optimal choices change over time?
With respect to parts b) and c), provide interesting illustrative example(s) to compare and contrast different outcomes under different scenarios.
2. How do individuals decide how much they are willing to pay for insurance?
a) Explain how microeconomics provides answers to this, outlining key insights from microeconomics theory on Choice under Uncertainty.
b) How and why might an individual’s attitude to risk affect this decision?
c) How and why might an individual’s life situation affect this decision?
With respect to parts b) and c), provide interesting illustrative example(s) to compare and contrast different outcomes under different scenarios.
3. How do firms decide the best combination of labour and capital in production planning?
a) Explain how microeconomics provides answers to this, outlining key insights from microeconomics theory on Production and Costs.
b) Why might optimal use of capital and labour vary between firms?
c) Why might optimal use of capital and labour change if a new production process is invented?
